1.Briefly explain the Pure Expectations Hypothesis (PEH). Explain why a risk premium related to maturity is not consistent with the PEH. Is the historical empirical evidence (historical data) consistent with the PEH?

2.Define and explain Key Rate Durations. Why do we look at Key Rate Durations for portfolios only? How could two portfolios have the same weighted Modified Duration, but very different Key Rate Durations?

3.Use the following information to calculate the no arbitrage price for a Treasury note futures contract. P = 103.65, Coupon Rate = 4.50%, borrowing and lending rate = 3.00%, t = 0.35. The current quoted futures prices for the same contract is 106.20. State whether you would execute a Cash and Carry or Reverse Cash and Carry trade to create arbitrage profit. Calculate the profit per contract from the trade.

4.Explain the difference between Option Adjusted Spread (OAS) and Z-Spread (Static Spread). Separately discuss how a call and a put option impact the relationship between the two spread measures.

5.One of the key functions of a credit analyst is deriving pro forma projections for future financial data. Explain why an analyst runs a pro forma and then runs a downside or "worst case scenario".

6.Briefly explain the major differences between reduced form and structural models of default risk. Include the inputs, outputs, and uses.