Here is a screenshot of a slide that the professor went over in class (PV = Present Value): http://dl.dropbox.com/u/64325990/ECON%20102/Capture.PNG [Broken] I think the reason why I don't understand what's going on in the math is because I don't understand the question at all. So the bond pays $100 each year and on the final year pays $1000. Then there is an interest rate of 7% per year (which means you would gain 7%. Am I right so far? Could someone please explain the intuition behind the math? Edit: Since it pays a total of $1300 would that mean you would get a profit of $1300-$1078.73?