8E

- i APPENDIX 8E. DISTRIBUTION USED FO R DISCOUNT RATES

TABLE OF CO NTENTS

8E.1 INTRODUCTION

................................ ................................ ................................ ... 8E

- 1
8E.2 DISTRIBUTION OF MORT GAGE INTEREST RATES

................................ ...... 8E

- 1
8E.3 DISTRIBUTION OF RATE S FOR DEBT CLASSES C ONSIDERED FOR
REPLACEMENT PRODUCTS

................................ ................................ .............. 8E

- 1
8E.4 DISTRIBU TION OF RATES FOR EQ UITY CLASSES CONSIDE RED FOR
REPLACEMENT PRODUCTS

................................ ................................ .............. 8E

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LIST OF FIGURES

Figure 8E.2.1 Distribution of New Home Mortgage Interest Rates

................................ ... 8E

- 1 Figure 8E.3.1 Distribution of Home Equity Loan Interest Rates

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- 2 Figure 8E.3.2 Distribution of Credit Card Interest Rates

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- 2 Figure 8E.3.3 Distribution of Installm ent Loan Interest Rates

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- 3 Figure 8E.3.4 Distribution of Other Residence Loan Interest Rates

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- 3 Figure 8E.3.5 Distribution of Other Lines of Credit Loan Interest Rates

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- 4 Figure 8E.4.1 Distribution of Annual Rate of Return on CDs

................................ ........... 8E

- 5 Figure 8E.4.2 Distribution of Annual Rate of Return on Savings Bonds

........................... 8E

- 5 Figure 8E.4.3 Distribution of Annual Rate of Return on Corporate AAA Bonds

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- 6 Figure 8E.4.4 Distribution of Annual Rate of Savings Accounts

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- 6 Figure 8E.4.5 Distribution of Annual Rate of Return on S&P 500

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- 7 Figure 8E.4.6 Distribution of Annual Rate of Return on Mutual Funds

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- 78E

- 1 APPENDIX 8E. DISTRIBUTION USED FO R DISCOUNT RATES

8E.1 INTRODUCTION

DOE derived discount rates for the LCC analysis using data on interest or return rates for various types of debt and equity. To account for variation among ho useholds in rates for each of the types, DOE sampled a rate for each household from a distribution of rates for each debt and equity type. This appendix describes the distributions used.

8E.2 DISTRIBUTION OF MORT GAGE INTEREST RATES

Figure 8E.2.1 shows the distribution of real interest rates for new home mortgages. The data source DOE used for mortgage interest rates is the Federal Reserve Boa rd’s Survey of Consumer Finances (SCF) in 1989, 1992, 1995, 1998, 2001, 2004, and 2007. 1 Using the appropriate SCF data for each year, DOE adj usted the nominal mortgage interest rate for each
relevant household in the SCF for mortgage tax deduction and inflation. In cases where the effective interest rate is equal to or below the inflation rate (resulting in a negative real interest rate), DOE s et the real effective interest rate to zero.

Figure 8E.2.1 Distribution of New Home Mortgage Interest Rates

8E.3 DISTRIBUTION OF RATE S FOR DEBT CLASSES C ONSIDERED FOR
REPLACEMENT PRODUCTS

Figure 8E.3.1 through Figure 8E.3.5 show the distribution of real interest rates for different types of debt used to finance replacement for residential dishwashers. The data source 0% 5% 10% 15% 20% 25% 30%Probability

Real Interest Rate8E

- 2 for the interest rates for home equity loans, credit cards, installment loans, other residence loans,
and other lines of credit is the Federal Reserve Board’s SCF in 1989, 1992, 1995, 199 8, 2001, 2004, and 2007. 1 DOE adjusted the nominal rates to real rates using the annual inflation rate in each year. For home equity loans, DO E calculated effective interest rates in a similar manner as for mortgage rates, since interest on such loans is tax deductible.

Figure 8E.3.1 Distribution of Home Equity Loan Interest Rates

Figure 8E.3.2 Distribution of Credit Card Interest Rates 0% 5% 10% 15% 20% 25% 30%Probability

Real Interest Rate

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%Probability

Real Interest Rate8E

- 3 Figure 8E.3.3 Distribution of Installment Loan Interest Rates

Figure 8E.3.4 Distribution of Other Residence Loan Interest Rates

0% 5% 10% 15% 20% 25% 30% 35% 40%Probability

Real Interest Rate

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%Probability

Real Interest Rate8E

- 4 Figure 8E.3.5 Distribution of Other Lines of Credit Loan Interest

Rates

8E.4 DISTRIBUTION OF RATE S FOR EQUITY CLASSES CONSIDERED
FOR REPLACEMENT PROD UCTS

Figure 8E.4.1 through Figure 8E.4.6 show the distribution of real interest rates for different types of equity used to finance replacement for residential dishwashers. Data for equity
classes are not available from the Federal Reserve Board’s SCF , so DOE derived data for these
classes from national

- level historical data. The interest rates associated with certificates of deposit (CDs), 2 savings bonds, 3 and AAA corporate bonds 4 are from Federal Rese rve Board
time

- series data covering 1977 to 2010. DOE assumed rates on checking accounts to be zero. Rates on savings and money market accounts are from Cost of Savings Index data covering 1984

to 2010. 5 The rates for stocks are the annual returns on the Standard and Poor’s (S&P) 500 from

1977 to 2010. 6 The mutual fund rates are a weighted average of the stock rates (two

- thirds weight) and the bo nd rates (one

- third weight) in each year from 1977 to 2010. DOE adjusted the nominal rates to real rates using the annual inflation rate in each year. 0% 2% 4% 6% 8% 10% 12% 14%Probability

Real Interest Rate8E

- 5 Figure 8E.4.1 Distribution of Annual Rate of Return on CDs

Figure 8E.4.2 Distribution of Annual Rate of Return on Savings

Bonds - 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year

- 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8E

- 6 Figure 8E.4.3 Distribution of Annual Rate of Return on Corporate
AAA Bonds

Figure 8E.4.4 Distribution of Annual Rate of Savings Accounts - 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year

- 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8E

- 7 Figure 8E.4.5 Distribution of Annual Rate of Return on S&P 500

Figure 8E.4.6 Distribution of Annual Rate of Return on Mutual

Funds - 40% - 30% - 20% - 10%

0% 10% 20% 30% 40%Annual Rate of Return

Year

- 30% - 20% - 10%

0% 10% 20% 30%Annual Rate of Return

Year8E

- 8 REFERENCES

1. The Federal Reserve Board, Survey of Consumer Finances 1989, 1992, 1995, 1998, 2001, 2004, 2007 . < http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html >

2. The Federal Reserve Board, Federal Reserve Statistical Release, Selected Interest Rates, Historical Data, Instrument: CDs (secondary market), Maturity: 6

- month, Frequency: Annual, Description: Average rate on 6

- month negotiable certificates of deposit (sec ondary market), quoted on an investment basis, 2011. (Last accessed 2/25/11,

< http://www.federalreserve.gov/releases/H15/data.htm >

3. The Federal Reserve Board, Federal Reserve Statistica l Release, Selected Interest Rates, Historical Data, Instrument: State and local bonds, Maturity: 20

- year, Frequency: Monthly, Description: Bond buyer go 20

- bond municipal bond index, 2011. (Last accessed 2/25/11, < http://www.federalreserve.gov/releases/H15/data.htm >

4. The Federal Reserve Board, Federal Reserve Statistical Release, Selected Interest Rates, Historical Data, Instrument: Corporate bonds/Moody's Seasoned AAA, Frequency:

Annua l, Description: Moody's yield on seasoned corporate bonds

- all industries, AAA,

2011. (Last accessed 2/25/11,

< http://www.federalreserve.gov/releases/H15/data.htm >

5. Mortgage

- X

- Mortga ge Information Service, Cost of Savings Index (COSI) Index History, 2011. (Last accessed February 25, 2011.) < http://mortgage

x.com/general/indexes/default.asp >

6. Damodaran Online Data Pag e, Historical Returns on Stocks, Bonds and Bills

- United States, 2011. Damodaran. (Last accessed February 25, 2011.)

< http://pages.stern.nyu.edu/~adamodar/ >