8C

- i DISTRIBUTIONS USED F OR DISCOUNT RATES APPENDIX 8C.

TABLE OF CONTENTS

8C.1 INTRODUCTION

................................ ................................ ................................ ... 8C

- 1 8C.2 DISTRIBUTION OF RATE S FOR DEBT CLASSES C ONSIDERED FOR REPLACEMENT PRODUCTS

................................ ................................ .............. 8 C

- 1 8C.3 DISTRIBUTI ON OF RATES FOR EQUI TY CLASSES CONSIDERE D FOR REPLACEMENT PRODUCTS

................................ ................................ .............. 8C

- 5

LIST OF FIGURES

Figure 8C.2.1 Distribution of Home Equity Loan Interest Rates

................................ ....... 8C

- 1 Figure 8C.2.2 Distribution of Credit Card Interest Rates

................................ ................... 8C

- 2 Figure 8C.2.3 Distribution of Installment Loan Interest Rates

................................ ........... 8C

- 3 Figure 8C.2.4 Distribution of Other Residence Loan Interest Rates

................................ .. 8C

- 4 Figure 8C.2.5 Distribution of Other Lines of Credit Loan Interest Rates

.......................... 8C

- 5 Figure 8C.3.1 Distribution of Annual Rate of Return on CDs

................................ ........... 8C

- 6 Figure 8C.3.2 Distribution of Annual Rate of Return on Savings Bonds

........................... 8C

- 7 Figure 8C.3.3 Distribution of Annual Rate of Return on Corporate AAA Bonds

.............. 8C

- 8 Figure 8C.3.4 Distribution of Annual Rate of Savings Accounts

................................ ....... 8C

- 9 Figure 8C.3.5 Distribution of Annual Rate of Return on S&P 500

................................ .. 8C

- 10 Figure 8C.3.6 Distribution of Annual Rate of Return on Mutual Funds

.......................... 8C

- 118C

- 1 DISTRIBUTIONS USED F OR DISCOUNT RATES APPENDIX 8C.

8C.1 INTRODUCTION

DOE derived consumer discount rates for the life

- cycle cost (LCC) a nalysis 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.

8C.2 DISTRIBUTION OF RATE S FOR DEBT CLASSES C ONSIDERED FOR REPLACEMENT PRODUCTS

Figure 8C.2.1 through Figure 8C.2.5 show the distribution of real interest rates for different types of debt used to finance replacement products . 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, 2007 , and
2010

. 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 ma nner as for mortgage rates, because interest on such loans is tax deductible.

Figure 8C.2.1 Distribution of Home Equity Loan Interest Rates 0% 5% 10% 15% 20% 25% 30%Probability

Real Interest Rate8C

- 2 Figure 8C.2.2 Distribution of Credit Card Interest Rates 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%Probability

Real Interest Rate8C

- 3 Figure 8C.2.3 Distribution of Installment Loan Interest Rates 0% 5% 10% 15% 20% 25% 30% 35% 40%Probability

Real Interest Rate8C

- 4 Figure 8C.2.4 Distribution of Other Residence Loan Interest Rates 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%Probability

Real Interest Rate8C

- 5 Figure 8C.2.5 Distribution of Other Lines of Credit Loan Interest Rates

8C.3 D ISTRIBUTION OF R ATES FOR E QUITY C LASSES CONSIDERED FOR REPL ACEMENT P RODUCTS

Figure 8C.3.1 through Figure 8C.3.6 show the distribution of real interest rates for different types of equity used to finance replacement products . 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 Reserve Board time

- series data covering 1977 to 201 2 . 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 201 2

. 5 The rates for stocks are the annual returns on the Standard and Po or’s (S&P) 500 from 1977 to 201 2

. 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 201 2 . DOE adjusted the nominal rates to real rates using the annual inflation rate in each year. 0% 2% 4% 6% 8% 10% 12%Probability

Real Interest Rate8C

- 6 Figure 8C.3.1 Distribution of Annual Rate of Return on CDs -2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8C

- 7 Figure 8C.3.2 Distribution of Annual Rate of Return on Savings Bonds -2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8C

- 8 Figure 8C.3.3 Distribution of Annual Rate of Return on Corporate AAA Bonds -2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8C

- 9 Figure 8C.3.4 Distribution of Annual Rate of Savings Accounts -2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8C

- 10 Figure 8C.3.5 Distribution of Annual Rate of Return on S&P 500 -40% -30% -20% -10%

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

Year8C

- 11 Figure 8C.3.6 Distribution of Annual Rate of Return on Mutual Funds -30% -20% -10%

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

Year8C

- 12 REFERENCES

1. The Federal Reserve Board, Survey of Consumer Finances 1989, 1992, 1995, 1998, 2001, 2004, 2007, 2010

. < 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, 2013.

< 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, 2013.

< 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: An nual, Description: Moody’s yield on seasoned corporate bonds

— all industries, AAA, 2013. < www.federalreserve.gov/releases/H15/data.htm >

5. Mortgage

- X

- Mortgage Information Service, Cost of Savings Index (COSI) Index History, 2013. < http://mortgage

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

6. Damodaran Online Data Page, The Data Page: Historical Returns on Stocks, Bonds and Bills

- United States, 2013. Damodaran. < http://pages.stern.nyu.edu/~adamodar/ >