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 ROOM AIR CONDITIONERS AND 

CLOTHES DRYERS.............................................................................................8-D-2 

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

FINANCE REPLACEMENT ROOM AIR CONDITIONERS AND 

CLOTHES DRYERS.............................................................................................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 CDs .........................................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 

EERE-2007-BT-STD-0010 COMMENT 20.3
 

 

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 

Consumer Finances (SCF) in 1989, 1992, 1995, 1998, 2001, 2004, and 2007.1 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. 

0%

5%

10%

15%

20%

25%

30%

35%

0.5%

1.6%

2.5%

3.5%

4.4%

5.4%

6.4%

7.4%

8.5%

9.5%

10.5%

11.6%

12.4%

13.5%

14.4%

16.7%

22.9%

Real Interest Rate 

Probability 

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


8-D-1 

EERE-2007-BT-STD-0010 COMMENT 20.3
8-D.3 DISTRIBUTION OF RATES FOR TYPES OF DEBT AND EQUITY USED 

TO FINANCE REPLACEMENT ROOM AIR CONDITIONERS AND 

CLOTHES DRYERS 

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

types of debt used to finance replacement room air conditioners and clothes dryers. The data 

source 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, 1998, 

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, DOE calculated effective interest rates in a similar 

manner as for mortgage rates, since interest on such loans is tax deductible. 

0%

5%

10%

15%

20%

25%

30%

35%

0.4%

1.5%

2.6%

3.5%

4.5%

5.4%

6.4%

7.5%

8.5%

9.5%

10.6%

11.8%

12.7%

13.7%

14.7%

16.7%

17.5%

42.5%

Real Interest Rate 

Probability 

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


8-D-2 

EERE-2007-BT-STD-0010 COMMENT 20.3
0%

2%

4%

6%

8%

10%

12%

0.0%

1.4%

2.5%

3.5%

4.5%

5.6%

6.7%

7.5%

8.7%

9.6%

10.6%

11.5%

12.6%

13.6%

14.7%

15.6%

16.4%

17.6%

18.5%

19.4%

20.5%

21.4%

22.5%

23.6%

24.6%

25.5%

26.3%

27.3%

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%

6.7%

8.6%

10.6%

12.5%

14.7%

16.5%

18.5%

20.5%

22.3%

24.6%

26.6%

28.5%

34.1%

43.6%

47.2%

Real Interest Rate 

Probability 

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

8-D-3 

EERE-2007-BT-STD-0010 COMMENT 20.3
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%

14.7%

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%

16%

0.1%

1.4%

2.5%

3.5%

4.5%

5.5%

6.7%

7.6%

8.7%

9.5%

10.5%

11.6%

12.5%

13.5%

14.7%

15.6%

16.5%

17.3%

18.5%

19.1%

20.2%

21.5%

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 

EERE-2007-BT-STD-0010 COMMENT 20.3
 

 

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

FINANCE REPLACEMENT ROOM AIR CONDITIONERS AND 

CLOTHES DRYERS 

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

types of equity used to finance replacement room air conditioners and clothes dryers. 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 deposit (CDs),2

 savings bonds,3 and bonds (AAA corporate bonds)4 are from 

Federal Reserve Board time-series data covering 1977 to 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 1984 to 2007.5

 The rates for stocks are the annual returns on the Standard 

and Poor’s (S&P) 500 from 1977 to 2007.6 The mutual fund rates are a weighted average of the 

stock rates (two-thirds weight) and the bond rates (one-third weight) in each year from 1977 to 

2007. 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 CDs
 

8-D-5 

EERE-2007-BT-STD-0010 COMMENT 20.3
-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 

EERE-2007-BT-STD-0010 COMMENT 20.3
-2%

0%

2%

4%

6%

8%

1984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008

Year 

Annual Rate of Return 

8-D-7 

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 

EERE-2007-BT-STD-0010 COMMENT 20.3
-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 

EERE-2007-BT-STD-0010 COMMENT 20.3
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 

(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 

EERE-2007-BT-STD-0010 COMMENT 20.3