Understanding Bond Moosmüller Yield in Excel

The bond Moosmüller yield is a way of measuring the return on a bond that takes into account the time value of money and the coupon payments. It is also known as the internal rate of return or the yield to maturity of the bond.

The bond Moosmüller yield is calculated by finding the discount rate that makes the present value of the bond’s cash flows equal to its market price. The cash flows include the coupon payments and the face value of the bond at maturity. The present value is the value of the cash flows in today’s terms, using the discount rate as the interest rate.

The bond Moosmüller yield is different from the bond’s coupon rate, which is the annual interest rate paid by the bond issuer. The coupon rate is fixed and does not change over the life of the bond. The bond Moosmüller yield, on the other hand, changes with the market price of the bond and the interest rate environment.

The bond Moosmüller yield is also different from the bond’s current yield, which is the annual coupon payment divided by the current market price of the bond. The current yield only reflects the income component of the bond’s return, and does not account for the capital gain or loss that occurs when the bond is sold or matures.

The bond Moosmüller yield is useful for comparing the returns of different bonds with different coupon rates, maturities, and market prices. It also helps investors to evaluate the attractiveness of a bond relative to other investment opportunities.

The bond Moosmüller yield is named after the German mathematician and economist Ludwig Moosmüller, who developed the formula for calculating it in the 19th century.

Basic Theory

The Bond Moosmüller Yield is a modified yield calculation that accounts for the time value of money, especially
when interest rates change over time. Unlike traditional yield calculations, BMY considers both the current yield
and the yield to maturity, providing a more comprehensive picture of the bond’s performance.

The formula for Bond Moosmüller Yield is as follows:

Where:

• is the annual coupon payment,
• is the face value of the bond,
• is the current price of the bond, and
• is the number of years to maturity.

Procedures in Excel

1. Data Input: Set up an Excel table with the necessary data, including the face value (),
   current price (), annual coupon payment (), and the number of years to maturity ().
2. Calculate the Current Yield: Use the formula to find the current yield.
3. Calculate the Yield to Maturity: Utilize Excel’s RATE function to calculate the yield to
   maturity. The formula is =RATE(N, C, -P, F).
4. Apply the Bond Moosmüller Yield Formula: Combine the current yield and yield to maturity using
   the BMY formula.

Scenario

Let’s consider a scenario:

• Face Value (): $1,000
• Current Price (): $950
• Annual Coupon Payment (): $50
• Years to Maturity (): 5 years

1. 1. Data Input:

1. 1. Calculate the Current Yield:

or 5.26%

1. 1. Calculate the Yield to Maturity:

Using the RATE function, =RATE(5, 50, -950, 1000), the yield to maturity is approximately 6.78%.

1. 1. Apply the Bond Moosmüller Yield Formula:

BMY is approximately 6.51%.

Alternative Approaches

1. Solver Function: Utilize Excel’s Solver function to find the yield that minimizes the difference
   between the current price and the present value of future cash flows.
2. Data Table: Create a data table to analyze various scenarios by changing interest rates and
   observe the impact on bond prices.