The "stub period" is the period of time between the Stub Period Date and the end of the first calendar year of the financial forecast. For example, if the Stub Period Date is September 30, 2022, the Stub Period would consist of the 92 days beginning October 1, 2022 and ending December 31, 2022. Note that the Stub Period begins the day after the Stub Period Date and includes the final day of the Calendar Year.
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This period includes cash flows that contribute to the value derived from the Discounted Cash Flow analysis, but it is less than the length of a full calendar year. Accordingly, since these cash flows occur sooner than cash flows generated over a full calendar year, they are discounted by a smaller factor than that applied to the full calendar year. In the example above, the discounting period for Stub Period cash flows would be ~0.25 years without the application of the mid-year convention and ~0.13 years with the mid-year convention.
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