I was reading Learn to Earn by Peter Lynch and I came across a paragraph that has confused me to say the least. It is regarding bonds -
If you buy a $10,000 ten-year bond and hold it for ten years, you get your money back plus interest, and nothing more. Actually, you get back much less because of inflation. Let’s say the bond is paying 8 percent a year, and the inflation rate over that ten-year period is 4 percent. Even though you’ve collected $8,000 in interest payments, you’ve lost almost $1,300 to inflation. Your original $10,000 investment is now worth $6,648 after ten years of 4 percent annual inflation. So the whole ten-year investment has left you with less than a 3 percent annual return, and that’s before taxes. If you figure in the taxes, your return approaches zero.
I can calculate the interest payment as $8,000. I can also see how the investment of $10,000 is now worth only $6,648 after ten years of 4 percent annual inflation.
But my question is, how do we arrive at "lost almost $1,300" part? Would be great if you could explain.