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Excel 2010: Financial Functions in Depth
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DISC: Calculating the discount rate of a security


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Excel 2010: Financial Functions in Depth

with Curt Frye

Video: DISC: Calculating the discount rate of a security

When you evaluate an investment, you will know such things as settlement date, the maturity date, the amount you have to invest, and the amount you get back. What you might not know is the investment's discount rate. And the discount rate is the rate of a guaranteed investment such as a T-Bill. So in other words what is the discount rate that the creators of this investment assumed when they created it? In Excel you can use the DISC function to discover the discount rate of a security. The DISC function has the following five arguments.
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  1. 2m 11s
    1. Welcome
      1m 6s
    2. Using the exercise files
      36s
    3. Disclaimer
      29s
  2. 28m 32s
    1. PMT: Calculating a loan payment
      3m 31s
    2. PPMT and IPMT: Calculating principal and interest per loan payment
      4m 18s
    3. CUMPRINC and CUMIPMT: Calculating cumulative principal and interest paid between periods
      4m 30s
    4. ISPMT: Calculating interest paid during a specific period
      2m 13s
    5. EFFECT and NOMINAL: Finding nominal and effective interest rates
      3m 31s
    6. ACCRINT and ACCRINTM: Calculating accrued interest for investments
      4m 15s
    7. RATE: Discovering the interest rate of an annuity
      2m 41s
    8. NPER: Calculating the number of periods in an investment
      3m 33s
  3. 19m 5s
    1. SLN: Calculating depreciation using the straight-line method
      1m 48s
    2. DB: Calculating depreciation using the declining balance method
      3m 10s
    3. DDB: Calculating depreciation using the double-declining balance method
      3m 20s
    4. SYD: Calculating depreciation for a specified period
      2m 13s
    5. VDB: Calculating declining balance depreciation for a partial period
      3m 24s
    6. AMORDEGRC: Calculating depreciation using a depreciation coefficient
      2m 27s
    7. AMORLINC: Calculating depreciation for each accounting period
      2m 43s
  4. 22m 33s
    1. FV: Calculating the future value of an investment
      2m 48s
    2. FVSCHEDULE: Calculating the future value of an investment with variable returns
      2m 21s
    3. PV: Calculating the present value of an investment
      2m 6s
    4. NPV: Calculating the net present value of an investment
      3m 17s
    5. IRR: Calculating internal rate of return
      2m 33s
    6. XNPV: Calculating net present value given irregular inputs
      2m 32s
    7. XIRR: Calculating internal rate of return for irregular cash flows
      1m 48s
    8. MIRR: Calculating internal rate of return for mixed cash flows
      2m 2s
    9. DISC: Calculating the discount rate of a security
      3m 6s
  5. 24m 12s
    1. COUPDAYBS: Calculating total days between coupon beginning and settlement
      3m 2s
    2. COUPDAYS: Calculating days in the settlement date's coupon period
      2m 48s
    3. COUPDAYSNC: Calculating days from the settlement date to the next coupon date
      3m 1s
    4. COUPNCD: Calculating the next coupon date after the settlement date
      2m 43s
    5. COUPNUM: Calculating the number of coupons between settlement and maturity
      2m 55s
    6. COUPPCD: Calculating the date of a coupon due immediately before settlement
      3m 4s
    7. DURATION: Calculating the annual duration of a security
      3m 20s
    8. MDURATION: Calculating the duration of a security using the modified Macauley method
      3m 19s
  6. 28m 43s
    1. DOLLARDE and DOLLARFR: Converting between fractional prices and decimal prices
      2m 36s
    2. INTRATE: Calculating the interest rate of a fully invested security
      2m 50s
    3. RECEIVED: Calculating the value at maturity of a fully invested security
      2m 46s
    4. PRICE: Calculating the price of a security that pays periodic interest
      3m 19s
    5. PRICEDISC: Calculating the price of a discounted security
      2m 48s
    6. PRICEMAT: Calculating the price of a security that pays interest at maturity
      1m 57s
    7. TBILLEQ: Calculating the bond-equivalent yield for a Treasury bill
      1m 50s
    8. TBILLPRICE: Calculating the price for a Treasury bill
      1m 31s
    9. TBILLYIELD: Calculating the yield of a Treasury bill
      1m 41s
    10. YIELD: Calculating the yield of a security that pays periodic interest
      2m 59s
    11. YIELDDISC: Calculating the annual yield for a discounted security
      2m 9s
    12. YIELDMAT: Calculating the annual yield of a security that pays interest at maturity
      2m 17s
  7. 12m 1s
    1. ODDFPRICE: Calculating the price of a security with an odd first period
      3m 17s
    2. ODDFYIELD: Calculating the yield of a security with an odd first period
      3m 3s
    3. ODDLPRICE: Calculating the price of a security with an odd last period
      2m 44s
    4. ODDLYIELD: Calculating the yield of a security with an odd last period
      2m 57s
  8. 1m 5s
    1. Additional resources
      1m 5s

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Excel 2010: Financial Functions in Depth
2h 18m Intermediate Jun 28, 2011

Viewers: in countries Watching now:

In this course, author Curt Frye shows how to perform a wide range of financial calculations quickly and easily using the many financial functions found in Excel 2010. The course details dozens of functions for evaluating cash flows; calculating depreciation; determining rates of return, bond coupon dates, and security durations; and more.

Topics include:
  • Analyzing loans, payments, and interest
  • Discovering the interest rate of an annuity
  • Determining depreciation using the straight line, declining balance, double-declining balance, and other methods
  • Calculating the future value of an investment with variable returns
  • Finding the discount rate of a security
  • Converting between fractional prices and decimal prices
  • Determining the yield of securities that pay interest periodically
Subjects:
Business Finance
Software:
Excel Office
Author:
Curt Frye

DISC: Calculating the discount rate of a security

When you evaluate an investment, you will know such things as settlement date, the maturity date, the amount you have to invest, and the amount you get back. What you might not know is the investment's discount rate. And the discount rate is the rate of a guaranteed investment such as a T-Bill. So in other words what is the discount rate that the creators of this investment assumed when they created it? In Excel you can use the DISC function to discover the discount rate of a security. The DISC function has the following five arguments.

the first is the Settlement date and that is the date that you buy into the investment. Next is the maturity date. That is the date that you get the proceeds from the investment. Then we have the price per $100, just the amount it takes to buy in. Redemption value per 100, that's the amount you get back at the end of the investment on the maturity date. And then the basis and a basis is how interest is calculated based on the length of months and years. In the US the standard is to use 30-day months and that means it is a 360-day year but you can also have actual where it counts the actual days in a given year.

And Europe has its own method as well. There are five different methods that you can choose from and when you're creating the formula those options pop up. But in this case we're going to use the standard North American basis and that is option 0, which is also the default if you leave that argument blank. All right! Let's go ahead and create the function. We are in cell C10, type in equal sign, and then disc. Then a left parenthesis and we can start adding the arguments. Settlement is the settlement date. That's in cell C3, type a comma.

Maturity refers to the maturity date. That's in C4, comma. PR is the price for 100. That's in C5, type a comma. The redemption value is in C6 and the basis and there is a list of items and the formula autocomplete list. But in this case we have our basis in a cell so I'll type in the address, which is C7. Then I'll type a right parenthesis to close up the functions argument list and press Tab so I don't scroll down. And I see that the assumed discount rate for this bond is 6.017%.

Bond prices are usually given as $100 price and then the redemption value is based on that $100 purchase. So I'll just switch the arguments here, so we have 100 for the price per 100, which is typical, and then redemption value per $100. So before we had about a 6% discount rate and when I changed it to 100 and 106 you see that the discount rate goes down to 5.67%. So even though there was a $6 spread between the price per 100 and redemption value per 100, changing the price from 94 to 100 and redemption value from 100 to 106 made a substantial difference in the discount rate.

The DISC function lets you find an investment's discount rate when you know the investments term, initial cost and return. You can then compare that discount rate to the return from other investments to evaluate your options.

Find answers to the most frequently asked questions about Excel 2010: Financial Functions in Depth.


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A: Discover more on this topic by visiting Excel formulas on lynda.com.
 
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