For the following bonds, and given the yield curve, calculate the change in price for each bond and choose the bond which give you a positive change in price. Also, for the bond which have a positive change in price, calculate two zero coupon bonds required to hedge it and plot the value of assets and liabilities as interest rate changes from 1 to 50 percent. For the zero coupons, use the corresponding rate from the yield curve to calculate the future value.

The bonds and the yield curve are:

price

coupon

maturity

rating

callable

MOODYS CORP

114.52

5.5

10/10/2018

BBB

No

HERSHEY CO

153.37

8.8

10/10/2025

A

No

time

rate

1 mo

5.24

3 mo

5.16

6 mo

5.12

1 yr

4.96

2 yr

4.65

3 yr

4.55

5 yr

4.52

7 yr

4.53

10 yr

4.56

20 yr

4.78

30 yr

4.68

Use 10/10/2014 as the settlement date for all bonds, use integers for differences in years. Discard the convexity part of the bond equation.

The assignment report should have:

-The change in price calculations

-Calculation of the two zero coupon bonds

-The implicit yield curve

-Graph with the change in value of assets and liabilities