A 2-year 8% annual coupon bond has a price of $102.5 and yield of 6.625%. If the bond is held to maturity, what is the actual return, assuming interim coupons can be reinvested at an annual rate of 6.625%?

Answer in powerpoint:

Solution1.Final price $100.2.First coupon of $8, reinvested at yield of 6.625%: 8*(1+0.06625) = $8.53.3.Second coupon = $8.4.Total payment = 100 + 8.53 + 8 = $116.53.5.Let y be the annual return: 102.5*(1 + y)2= 116.53; y = 6.625%.

How do they get y? I need that part worked out.