8 - C - i APPENDIX 8 - C. DISTRIBUTIONS USED F OR DISCOUNT RATES TABLE OF CONTENTS 8 - C.1 INTRODUCTION ................................ ................................ ................................ . 8 - C - 1 8 - C.2 DISTRIBUTION OF MORT GAGE INTEREST RATES ................................ .... 8 - C - 1 8 - C.3 DISTRIBUTION OF RATE S FOR DEBT CLASSES CONSIDERED FOR REPLACEMENT PRODUCTS ................................ ................................ ............ 8 - C - 2 8 - C.4 DISTRIBUTION OF RATE S FOR EQUITY CLASSES CONSIDERED FOR REPLACEMENT PRODUCTS ................................ ................................ ............ 8 - C - 5 LIST OF FIGURES Figure 8 - C.2.1 Distribution of New Home Mortgage Interest Rates ................................ . 8 - C - 1 Figure 8 - C.3.1 Distribution of Home Equity Loan Interest Rates ................................ ..... 8 - C - 2 Figure 8 - C.3.2 Distribution of Credit Card Interest Rates ................................ ................. 8 - C - 3 Figure 8 - C.3.3 Distribution of Installment Loan Interest Rates ................................ ......... 8 - C - 3 Figure 8 - C.3.4 Distribution of Other Residence Loan Interest Rates ................................ 8 - C - 4 Figure 8 - C.3.5 Distribut ion of Other Lines of Credit Loan Interest Rates ........................ 8 - C - 4 Figure 8 - C.4.1 Distribution of Annual Rate of Return on CDs ................................ ......... 8 - C - 5 Figure 8 - C.4.2 Distribution of Annual Rate of Return on Savings Bonds ......................... 8 - C - 6 Figure 8 - C.4.3 Distribution of Annual Rate of Return on Corporate AAA Bonds ............ 8 - C - 6 Figure 8 - C.4.4 Distribution of Annual Rate of Savings Accounts ................................ ..... 8 - C - 7 Figure 8 - C.4.5 Distribution of Annual Rate of Return on S&P 500 ................................ .. 8 - C - 7 Figure 8 - C.4.6 Distribution of Annual Rate of Return on Mutual Funds .......................... 8 - C - 88 - C - 1 APPENDIX 8 - C. DISTRIBUTIONS USED F OR DISCOUNT RATES 8 - C.1 INTRODUCTION The Department of Energy ( DOE ) derived discount ra tes for the life - cycle cost ( 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 r ates for each debt and equity type. This appendix describes the distributions used. 8 - C.2 DISTRIBUTION OF MORT GAGE INTEREST RATES Figure 8 - C.2.1 s hows 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 a nd 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.

Figure 8 - C.2.1 Distribution of New Home Mortgage Interest Rates 0% 5% 10% 15% 20% 25% 30%Probability

Real Interest Rate8 - C - 2 8 - C.3 DISTRIBUTION OF RATE S FOR DEBT CLASSES C ONSIDERED FOR REPLACEMENT PRODUCTS Figure 8 - C.3.1 through Figure 8 - C.3.5 show the distribution of real interest rates for different types of debt used to finance replacement clothes dryers and room air conditioners. 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, because interest on such loans is tax deductible.

Figure 8 - C.3.1 Distribution of Home Equity Loan Interest Rates 0% 5% 10% 15% 20% 25% 30%Probability

Real Interest Rate8 - C - 3 Figure 8 - C.3.2 Distribution of Credit Card Interest Rates

Figure 8 - C.3.3 Distribution of Installment Loan Interest Rates 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%Probability

Real Interest Rate

0% 5% 10% 15% 20% 25% 30% 35% 40%Probability

Real Interest Rate8 - C - 4 Figure 8 - C.3.4 Distribution of Other Residence Loan Interest Rates

Figure 8 - C.3.5 Distribution of Other Lines of Credit Loan Interest Rates 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%Probability

Real Interest Rate

0% 2% 4% 6% 8% 10% 12% 14%Probability

Real Interest Rate8 - C - 5 8 - C.4 DISTRIBUTION OF RATE S FOR EQUITY CLASSES CONSIDERED FOR REPLACEMENT PROD UCTS Figure 8 - C.4.1 throu gh Figure 8 - C.4.6 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 2009. 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 2009. 5 The rates for stocks are the annual returns on the Standard and Poor’s (S&P) 500 f rom 1977 to 2009. 6 The mutual fund rates are a weighted average of t he stock rates (two - thirds weight) and the bond rates (one - third weight) in each year from 1977 to 2009. DOE adjusted the nominal rates to real rates using the annual inflation rate in each year.

Figure 8 - C.4.1 Distribution of Annual Rate of Return on CDs

- 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8 - C - 6 Figure 8 - C.4.2 Distribut ion of Annual Rate of Return on Savings Bonds

Figure 8 - C.4.3 Distribution of Annual Rate of Return on Corporate AAA Bonds - 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year

- 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year8 - C - 7 Figure 8 - C.4.4 Distribution of Annual Rate of Savings Accounts

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

- 2% 0% 2% 4% 6% 8%Annual Rate of Return

Year

- 40% - 30% - 20% - 10%

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

Year8 - C - 8 Figure 8 - C.4.6 Distribution of Annual Rate of Return on Mutual Funds - 30% - 20% - 10%

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

Year8 - C - 9 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, 2010. (Last accessed 2/25/10, < 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, 2010. (La st accessed 2/25/10, < http://www.federalreserve.gov/releases/H15/data.htm > 4. The Federal Reserve Board, Federal Reserve Statistical Release, Selected Interest Rates, Historical Data, Ins trument: Corporate bonds/Moody's Seasoned AAA, Frequency: Annual, Description: Moody's yield on seasoned corporate bonds - all industries, AAA, 2010. (Last accessed 2/25/10, < http://www.fed eralreserve.gov/releases/H15/data.htm > 5. Mortgage - X - Mortgage Information Service, Cost of Savings Index (COSI) Index History, 2010. (Last accessed February 25, 2010.) < http://mortgage x.com/general/indexes/default.asp > 6. Damodaran Online Data Page, Historical Returns on Stocks, Bonds and Bills - United States, 2010. Damodaran. (Last accessed February 25, 2010.) < http: //pages.stern.nyu.edu/~adamodar/ >