Final answer:
The yield to maturity on a bond is the total return an investor can expect if they hold the bond until it matures, considering annual interest and capital gains or losses. The exact YTM cannot be determined from the information provided because it requires a complex calculation involving the bond's price, face value, coupon rate, and time to maturity.
Step-by-step explanation:
The student's question pertains to the yield to maturity (YTM) of a bond from Abner Corporation. To calculate the YTM, we need to consider the annual interest payments, the face value of the bond, the current purchase price, and the time to maturity. The bond in question pays 11 percent interest annually on its $1000 face value and has 22 years until maturity. The student purchased the bond at $1,225.
The YTM reflects the total return an investor will receive by holding the bond to maturity, which includes annual interest payments and any capital gains or losses (the difference between the purchase price and the face value of the bond).
While the exact formula for YTM is complex and often requires a financial calculator or software, it essentially tells us the annual return an investor would earn if they bought the bond today and held it until it matures. Since the question does not provide the required calculation context (like frequency of compounding) and the actual YTM formula is not applied, I cannot provide a direct answer. However, if the bond was purchased for $1,225 and matures at $1,000, there is a capital loss there, but the investor also receives higher annual payments than the current interest rates, which could potentially offset this loss.