You buy a 7.25% $1,000 bond for $1,050, immediately after semiannual interest has been paid to the previous owner. Eight years later, you sell the band for $987.50, immediately after you receive the semiannual interest check. What is your yield during ownership?

Par Value = $1,000

Annual Coupon Rate = 7.25%
Semiannual Coupon Rate = 7.25% / 2
Semiannual Coupon Rate = 3.625%

Semiannual Coupon = 3.625% * $1,000
Semiannual Coupon = $36.25

Holding Period = 8 years
Semiannual Period = 16

Purchase Price = $1,050.00
Selling Price = $987.50

Let semiannual holding return be i%

$1,050.00 = $36.25 * PVIFA(i%, 16) + $987.50 * PVIF(i%, 16)

Using financial calculator:
N = 16
PV = -1050
PMT = 36.25
FV = 987.50

I = 3.1608%

Semiannual Yield = 3.1608%

Annual Yield = 2 * Semiannual Yield
Annual Yield = 2 * 3.1608%
Annual Yield = 6.32%