Robert Campbell and Carol Morris are senior vice-presidents ofthe Mutual Chicago Insurance Company. They are co- directors of thecompany’s pension fund management division, with Campbell havingresponsibility for fixed income securities (primarily bods) andMorris being responsible for equity investment. A major new client,the California League of Cities, has requested that Mutual ofChicago present an investment seminar to the mayors of therepresented cities. Campbell and Morris, who will make the actualpresentation, have asked you to help them by answering thefollowing questions. A. What are the key features of a bond? B. Howdo you determine the value of a bond? C. What is the value of a1-year, $1,000 par value bond with a 10% annual coupon if itsrequired rate of return is 10%? What is the value of a similar 10-year bond? D. (1) What would be the value of the bond described inpart (c) if, just after it had been issued, the expected inflationrate rose by three percentage/points, causing investors to requirea 13% return? Is the security now a discount bond or a premiumbond? (2) What would happen to the bond’s value if inflation fell,declined to 7%? Would it now be a premium bond or a discount bond?(3) What would happen to the value of the 10- year bond over timeif the required rate of return remained at (i) 13% or (iI) remainedat 7%? E. (1) What is the yield to maturity on a 10- year, 9%annual coupon, $1,000 par value bond that sells for $887.00? Thatsells for$1,134.20? What does the fact that a bond sells atadiscount or at a premium tell you about the relationship between rdand the bond’s coupon rate? (2) What is the current yield, thecapital gains yield, and the total return in each case in thepreceding question?