Assume that in January 2008 the Hong Kong Airport authority issued a series of 3.4 percent, 30-year bonds. Interest rates declined substantially in the years following the issue, and as they did, the price of the bonds increased. Also, assume in January 2018, 10 years later, the price of the bonds had increased to $1,130. In answering the following questions, assume that the bond requires annual interest payments.

1. Each bond originally sold at its $1,000 par value. What was the yield to maturity of these bonds when they were issued? (5 marks)

2. Calculate the yield to maturity in January 2018. (5 marks)

3. Assume that interest rates stabilized at the 2018 level and stayed there for the remainder of the life of the bonds. What will be the bonds price in January 2036, when they have 2 years remaining to maturity? (5 marks)

4. What will the price of the bonds be the day before they mature in 2038? (Disregard the last interest payment) (5 marks)

5. In 2010, the Hong Kong Airport bonds were classified as premium bonds. What happens to the price of a premium bond as it approaches maturity? (5 marks)