APPENDIX 8-D. DISTRIBUTIONS USED FOR DISCOUNT RATES 

TABLE OF CONTENTS 

8-D.1 INTRODUCTION .................................................................................................8-D-1 

8-D.2 DISTRIBUTION OF MORTGAGE INTEREST RATES ....................................8-D-1 

8-D.3 DISTRIBUTION OF RATES FOR TYPES OF DEBT AND EQUITY USED 

TO FINANCE REPLACEMENT FURNACES....................................................8-D-2 

8-D.4 DISTRIBUTION OF RATES FOR TYPES OF EQUITY USED TO 

FINANCE REPLACEMENT FURNACES ..........................................................8-D-5


LIST OF FIGURES 

Figure 8-D.2.1 Distribution of New Home Mortgage Interest Rates .................................8-D-1


Figure 8-D.3.1 Distribution of Home Equity Loan Interest Rates .....................................8-D-2


Figure 8-D.3.2 Distribution of Credit Card Interest Rates .................................................8-D-3


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


Figure 8-D.3.4 Distribution of Other Residence Loan Interest Rates ................................8-D-4


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


Figure 8-D.4.1 Distribution of Annual Rate of Return on CD’s ........................................8-D-5


Figure 8-D.4.2 Distribution of Annual Rate of Return on Savings Bonds.........................8-D-6


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


Figure 8-D.4.4 Distribution of Annual Rate of Savings Accounts.....................................8-D-7


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


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


8-D-i 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
0.4%

1.6%

2.5%

3.5%

4.4%

5.4%

6.4%

7.4%

8.5%

9.4%

10.5%

11.7%

12.4%

13.3%

14.4%

16.9%

23.2%

APPENDIX 8-D. DISTRIBUTIONS USED FOR DISCOUNT RATES 

8-D.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 households 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. 

8-D.2 DISTRIBUTION OF MORTGAGE INTEREST RATES 

Figure 8-D.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 Board’s Survey of 

1 Consumer Finances (SCF) in 1989, 1992, 1995, 1998, 2001, and 2004. Using the appropriate 

SCF data for each year, DOE adjusted 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 

set the real effective interest rate to zero. 

30%

25%

20%

15%

10%

5%

0%

Probability 

Real Interest Rate 

Figure 8-D.2.1 Distribution of New Home Mortgage Interest Rates 

8-D-1 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
0.4%

1.5%

2.5%

3.5%

4.5%

5.4%

6.4%

7.5%

8.5%

9.5%

10.5%

11.8%

12.7%

13.4%

14.7%

15.0%

17.0%

17.5%

42.7%

8-D.3	 DISTRIBUTION OF RATES FOR TYPES OF DEBT AND EQUITY USED 

TO FINANCE REPLACEMENT FURNACES 

Figure 8-D.3.1 through Figure 8-D.3.5 show the distribution of real interest rates for 

different types of debt used to finance replacement furnaces. The data source for the interest rates 

for home equity loans, credit cards, installment loans, other residence loans, and other lines of 

1 credit is the Federal Reserve Board’s SCF in 1989, 1992, 1995, 1998, 2001, and 2004. DOE 

adjusted the nominal rates to real rates using the annual inflation rate in each year. For home 

equity loans, DOE calculated effective interest rates in a similar manner as for mortgage rates, 

since interest on such loans is tax deductible. 

25%

20%

15%

Probability 

10%

5%

0%

Real Interest Rate 

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


8-D-2 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
1

2

3456

0%

2%

4%

6%

8%

10%

0.0%1.4%2.6%3.5%4.5%5.5%6.6%7.4%8.6%9.6%

10.6%11.5%12.5%13.6%14.7%15.6%16.4%17.6%18.4%19.3%20.4%2 .4%

2.5%

2 6%.

2 .6%2 .5%2 .3%36.9%

Real Interest Rate 

Probability 

Figure 8-D.3.2 Distribution of Credit Card Interest Rates


0%

5%

10%

15%

20%

25%

30%

35%

0.0%

2.4%

4.5%

6.6%

8.6%

10.6%

12.5%

14.7%

16.4%

18.5%

20.5%

22.2%

24.6%

26.6%

28.4%

43.6%

47.2%

Real Interest Rate 

Probability 

Figure 8-D.3.3 Distribution of Installment Loan Interest Rates


8-D-3 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
0%

5%

10%

15%

20%

0.2%

1.5%

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

8.6%

9.4%

10.6%

11.6%

12.6%

14.8%

15.7%

16.6%

17.9%

Real Interest Rate 

Probability 

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


0%

2%

4%

6%

8%

10%

12%

14%

0.1%

1.5%

2.5%

3.5%

4.6%

5.6%

6.7%

7.6%

8.6%

9.5%

10.5%

11.6%

12.5%

13.5%

14.7%

15.6%

16.4%

17.4%

18.5%

19.1%

20.2%

21.1%

22.1%

23.5%

Real Interest Rate 

Probability 

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

Rates 

8-D-4 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
8-D.4	 DISTRIBUTION OF RATES FOR TYPES OF EQUITY USED TO 

FINANCE REPLACEMENT FURNACES 

Figure 8-D.4.1 through Figure 8-D.4.6 show the distribution of real interest rates for 

different types of equity used to finance replacement furnaces. Data for equity classes are not 

available from the Federal Reserve Board’s SCF, so the Department derived data for these 

classes from national-level historical data. The interest rates associated with certificates of 

2 3	 4 deposit (CDs), savings bonds, and bonds (AAA corporate bonds) are from Federal Reserve 

Board time-series data covering 1977–2007. DOE assumed rates on checking accounts to be 

zero. Rates on savings and money market accounts are from Cost of Savings Index data covering 

5 1984–2007. The rates for stocks are the annual returns on the Standard and Poor’s (S&P) 500 in 

6 the 1977–2007 period. The mutual fund rates are a weighted average of the stock rates (twothirds weight) and the bond rates (one-third weight) in each year of the 1977–2007 period. DOE 

adjusted the nominal rates to real rates using the annual inflation rate in each year. 

-2%

0%

2%

4%

6%

8%

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year 

Annual Rate of Return 

Figure 8-D.4.1 Distribution of Annual Rate of Return on CD’s


8-D-5 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
-2%

0%

2%

4%

6%

8%

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year 

Annual Rate of Return 

Figure 8-D.4.2 Distribution of Annual Rate of Return on Savings 

Bonds 

-2%

0%

2%

4%

6%

8%

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year 

Annual Rate of Return 

Figure 8-D.4.3 Distribution of Annual Rate of Return on Corporate 

AAA Bonds 

8-D-6 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
1

234567

-2%

0%

2%

4%

6%

8%

19841985198619871988198919901991199219931994199519961997199819992000200200200200200200200

Year 

Annual Rate of Return 

Figure 8-D.4.4 Distribution of Annual Rate of Savings Accounts


-30%

-20%

-10%

0%

10%

20%

30%

40%

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year 

Annual Rate of Return 

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


8-D-7 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year 

Annual Rate of Return 

Figure 8-D.4.6 Distribution of Annual Rate of Return on Mutual 

Funds 

8-D-8 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
REFERENCES


1.	 The Federal Reserve Board, Survey of Consumer Finances 1989, 1992, 1995, 1998, 2001, 

2004. <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 

(secondary market), quoted on an investment basis, 2008. 

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

3.	 The Federal Reserve Board, Federal Reserve Statistical 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, 2008. 

<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: 

Annual, Description: Moody's yield on seasoned corporate bonds - all industries, AAA, 

2008. <http://www.federalreserve.gov/releases/H15/data.htm> 

5.	 Wachovia, Cost of Savings Index (COSI) Index History, 2008. (Last accessed March 10, 

2008.) <http://mortgage-x.com/general/indexes/default.asp> 

6.	 Damodaran Online, Damodaran Online:The Data Page (Historical Returns on Stocks, 

Bonds, and Bills - United States), 2008. Stern School of Business, New York University. 

(Last accessed March 10, 2008.) <http://pages.stern.nyu.edu/~adamodar/> 

8-D-9 

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2