Why do results from Excel and RATE2DISC not match?
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I use RATE2DISC to calculate discount factors from interest rates but the results do not match exactly with the results of Excel calculations.
Accepted Answer
MathWorks Support Team
on 27 Jun 2009
The issue here is related to the way that RATE2DISC assumes a compounding convention in determining time factors, and more specifically, in computing coupon periods. Per SIFMA (which used to be SIA) convention used in the US, for the basis 0-7, a semi-annual compounding convention is assumed to compute the coupon periods. Per ICMA (used to be ISMA) used in Europe, for the basis 8-12, an annual compounding convention is assumed.
The following example illustrates the differences that appear when computing a discount factor.
% Assume semi-annual coupon periods
>> DF = exp(-.04*14/182/2)
DF =
0.998462721286836
>>
% Assume annual coupon periods -- this matches the Excel result
>> DF = exp(-.04*14/365)
DF =
0.998466929779252
>>
For this particular case, changing the basis to be 10 will provide answers that match Excel.
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