Here is a screenshot of a slide that the professor went over in class (PV = Present Value):(adsbygoogle = window.adsbygoogle || []).push({});

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?

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# ECON: Confusing math regarding bonds?

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