APPENDIX 8E. HOUSEHOLD DISCOUNT RATE DISTRIBUTIONS 
 

TABLE OF CONTENTS
 

8E.1 INTRODUCTION ...................................................................................................8E-1 

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

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

TO FINANCE REPLACEMENT EQUIPMENT....................................................8E-2 

8E.4 DISTRIBUTION OF RATES FOR TYPES OF EQUITY USED TO 

FINANCE REPLACEMENT EQUIPMENT..........................................................8E-5
 

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 .......................................8E-2
 

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

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

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

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

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

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

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

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

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

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

8E-i 
 

 

APPENDIX 8E. HOUSEHOLD DISCOUNT RATE DISTRIBUTIONS 

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 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. 

8E.2 DISTRIBUTION OF MORTGAGE 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 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 8E.2.1 Distribution of New Home Mortgage Interest Rates 

8E-1
 
8E.3	 DISTRIBUTION OF RATES FOR TYPES OF DEBT AND EQUITY USED 

TO FINANCE REPLACEMENT EQUIPMENT 

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

8E-2
 
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 8E.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 8E.3.3 Distribution of Installment Loan Interest Rates 

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

Rates 

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

FINANCE REPLACEMENT EQUIPMENT 

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 equipment. 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 1977–2007. DOE assumed rates on checking accounts to be 

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

1984–2007.5

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

the 1977–2007 period.6 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 8E.4.1 Distribution of Annual Rate of Return on CD’s 

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

AAA Bonds 

8E-6
 
-2%

0%

2%

4%

6%

8%

1984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008

Year 

Annual Rate of Return 

8E-7 

Figure 8E.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 8E.4.5 Distribution of Annual Rate of Return on S&P 500 
-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 8E.4.6 Distribution of Annual Rate of Return on Mutual 

Funds 

8E-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 

(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/> 

8E-9