Overview

This project is focused on the HSY 3.375% 15-May-2023 bond (CUSIP: 427866AZ1), and asks you to perform tasks that would be typical of someone working within the fixed-income sector as a quant / trader

Your first task is to access the security description from Reuters Eikon or Bloomberg. Evidence of this should be included in the appendix of your submission.

Fixed Income Security Valuation

In addition to the security description I would like you to make some assumptions to simplify your task of pricing this security. Assume that the security pays an annual coupon and that you are pricing the security on 15-May-2020. In addition, the only date on which the embedded option can be exercised is 15-May-2022 (i.e. ignore the 17-Apr-2023 date stated in the description). You should also assume that interest rate volatility is 15% and that interest rates follow a lognormal model, with an equal probability of an increase and decrease in rates each year.

The relevant USD-denominated benchmark par curve is as follows:

Maturity (Years)	Par Rate
1	1.542%
2	1.565%
3	1.606%
4	1.678%
5	1.762%

1. Determine the price of this security (as a % of face value) assuming that OAS is equal to 25 bps. Briefly explain why the price you have calculated will not precisely match the true theoretical price.
2. Determine the value of the embedded option in this security.
3. Compute an appropriate measure of duration and convexity for this security. You should clearly state which measure you have selected and briefly explain why.

An Excel spreadsheet clearly showing your interest rate tree, binomial pricing model, and associated calculations should be submitted for this section.