APPENDIX 8C. RESIDENTIAL DISCOUNT RATE DISTRIBUTIONS

TABLE OF CONTENTS

8C.1 INTRODUCTION ...................................................................................................8C­1

8C.2 DISTRIBUTION OF REAL INTEREST RATES FOR CONSUMER DEBT

CLASSES ................................................................................................................8C­1

8C.3 DISTRIBUTION OF REAL INTEREST RATES FOR FINANCIAL ASSETS....8C­2

LIST OF TABLES

Table 8C.2.1 Household Debt: Real Interest Rate Distributions......................................8C­2

Table 8C.3.1 Household Assets: Time­Series of Real Interest Rates...............................8C­4

8C­i
APPENDIX 8C. HOUSEHOLD DISCOUNT RATE DISTRIBUTIONS

8C.1 INTRODUCTION

As discussed in Chapter 8, DOE characterized real interest rates associated with

household debt and assets with probability distributions to develop a residential discount rate.

The sections below provide the probability distributions.

8C.2 DISTRIBUTION OF REAL INTEREST RATES FOR CONSUMER DEBT

CLASSES

Table 8C.2.1 presents weighted distributions of the real effective interest rates for various

household debt classes. As reported in Chapter 8, DOE used data from the Federal Reserve

Board’s Survey of Consumer Finances (SCF) in 1989, 1992, 1995, 1998, 2001, and 2004 to

generate the probability distributions for household debt. The weights associated with each

binned rate correspond to the share of each value among the surveyed households. DOE

calculated the rates shown in Table 8C.2.1 by developing a similar table from each of the six

SCF surveys. DOE used the average value in each binned rate and then averaged across the six

SCF surveys to derive the values shown in Table 8C.2.1.

8C­1
Table 8C.2.1 Household Debt: Real Interest Rate Distributions

Installment Other Other Line of

Home Equity Credit Card Loans Residence Credit

Rate Weight Rate Weight Rate Weight Rate Weight Rate Weight

(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)

0.4 10.0 0.0 4.4 0.0 34.1 0.2 12.8 0.1 4.2

1.5 7.1 1.4 1.2 1.4 2.1 1.5 6.3 1.5 2.3

2.5 12.7 2.6 1.7 2.4 4.2 2.5 6.9 2.5 1.6

3.5 23.4 3.5 3.4 3.4 5.4 3.5 12.1 3.5 4.9

4.5 19.2 4.5 4.5 4.5 5.4 4.5 15.3 4.6 5.6

5.4 13.6 5.5 5.2 5.6 6.7 5.5 19.2 5.6 12.5

6.4 5.2 6.6 6.8 6.6 7.1 6.5 14.3 6.7 10.4

7.5 4.2 7.4 4.3 7.5 3.5 7.5 6.5 7.6 5.5

8.5 2.0 8.6 5.5 8.6 4.1 8.6 2.9 8.6 8.3

9.5 1.1 9.6 5.7 9.5 3.7 9.4 1.6 9.5 9.3

10.5 0.6 10.6 5.5 10.6 3.2 10.6 0.4 10.5 7.9

11.8 0.2 11.5 6.2 11.5 1.9 11.6 0.5 11.6 6.6

12.7 0.3 12.5 5.2 12.5 2.7 12.6 0.5 12.5 6.7

13.4 0.1 13.6 4.8 13.5 1.8 14.8 0.4 13.5 1.9

14.7 0.2 14.7 9.2 14.7 3.8 15.7 0.1 14.7 3.5

15.0 0.0 15.6 7.8 15.6 1.8 16.6 0.3 15.6 2.2

17.0 0.0 16.4 6.1 16.4 2.1 17.9 0.1 16.4 2.5

17.5 0.0 17.6 5.7 17.6 1.9 17.4 1.0

42.7 0.1 18.4 1.9 18.5 1.3 18.5 0.3

19.3 2.3 19.4 0.7 19.1 1.4

20.4 1.1 20.5 0.7 20.2 1.0

21.4 0.4 21.4 0.3 21.1 0.0

22.5 0.3 22.2 0.2 22.1 0.2

23.6 0.1 23.4 0.3 23.5 0.3

24.6 0.2 24.6 0.4

25.5 0.2 25.2 0.2

26.3 0.1 26.6 0.0

36.9 0.0 27.8 0.0

28.4 0.0

29.3 0.1

43.6 0.0

44.3 0.0

47.2 0.0

8C.3 DISTRIBUTION OF REAL INTEREST RATES FOR FINANCIAL ASSETS

Table 8C.2.2 presents the time series of real effective interest rates associated with

various household asset types. As reported in Chapter 8, DOE used data from the various

8C­2
sources to generate the probability distributions for each of the asset types identified in Table

8C.2.2. For each asset, the average, minimum, maximum, and standard deviation are provided.

DOE developed probability distributions based on the average value and standard deviation.

Because the use of the standard deviations yield distributions with negative values, DOE

truncated the lower end of the normal distribution at a discount rate of zero. DOE also truncated

the higher end of the normal distribution in equal proportion to the truncation at the lower end to

maintain the average values above in Table 8C.2.2.

8C­3
Table 8C.3.1 Household Assets: Time­Series of Real Interest Rates

Year

Savings

Accounts

(%)

CDs

6 Months

(%)

Treasury

Savings

Bonds

(%)

Corp AAA

Bonds

(%)

Stocks S&P

500

(%)

Mutual

Funds

(%)

1977 ­ ­0.6 1.2 1.4 ­12.7 ­8.0

1978 ­ 0.9 0.8 1.1 ­1.0 ­0.4

1979 ­ 0.1 ­1.9 ­1.5 6.4 3.7

1980 ­ ­0.5 ­2.0 ­1.4 16.1 10.1

1981 ­ 5.0 2.8 3.5 ­13.6 ­8.1

1982 ­ 6.0 6.2 7.2 13.4 11.0

1983 ­ 5.9 7.7 8.6 18.5 14.9

1984 5.5 6.1 7.8 8.0 1.8 3.8

1985 5.4 4.5 7.0 7.5 26.7 20.1

1986 6.0 4.6 5.8 7.0 16.3 12.8

1987 3.3 3.2 4.8 5.5 2.1 3.0

1988 3.1 3.6 4.6 5.4 11.9 9.5

1989 3.0 4.1 3.5 4.2 25.4 18.1

1990 2.4 2.6 3.0 3.7 ­8.0 ­4.3

1991 2.7 1.6 3.8 4.4 25.0 17.9

1992 2.1 0.7 4.5 5.0 4.4 4.4

1993 1.1 0.3 3.5 4.1 6.8 5.7

1994 1.3 2.3 4.7 5.3 ­1.2 0.8

1995 2.2 3.1 3.9 4.6 33.4 23.6

1996 2.0 2.4 3.6 4.3 20.3 14.7

1997 2.7 3.4 4.2 4.9 28.9 20.7

1998 3.4 3.8 4.0 4.9 26.4 18.9

1999 2.3 3.2 3.6 4.7 18.3 13.4

2000 1.7 3.1 2.5 4.1 ­12.0 ­7.2

2001 1.8 0.8 2.6 4.1 ­14.3 ­8.7

2002 1.3 0.2 3.8 4.8 ­23.2 ­14.2

2003 ­0.2 ­1.1 2.6 3.3 25.6 17.9

2004 ­0.7 ­0.9 2.3 2.9 7.8 6.0

2005 ­0.6 0.3 1.2 1.8 1.4 1.3

2006 0.8 2.0 1.6 2.3 12.0 8.6

Average 2.3 2.4 3.5 4.2 8.8 7.0

Minimum ­0.7 ­1.1 ­2.0 ­1.5 ­23.2 ­14.2

Maximum 6.0 6.1 7.8 8.6 33.4 23.6

Std. Dev. 1.7 2.1 2.3 2.4 15.0 10.2

8C­4