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OMB Circular No. A-94

APPENDIX C
(Revised January 2003)

DISCOUNT RATES FOR COST-EFFECTIVENESS, LEASE PURCHASE,
AND RELATED ANALYSES

Effective Dates. This appendix is updated annually around the time of the President's budget submission to Congress. This version of the appendix is valid through the end of January 2004. A copy of the updated appendix can be obtained in electronic form through the OMB home page at /omb/circulars/a094/a94_appx-c.html, the text of the main body of the Circular is found at /omb/circulars/a094/a094.html, and a table of past years' rates is located at /omb/circulars/a094/DISCHIST-2003.pdf. Updates of the appendix are also available upon request from OMB’s Office of Economic Policy (202-395-3381).

Nominal Discount Rates. A forecast of nominal or market interest rates for 2003 based on the economic assumptions from the 2004 Budget are presented below. These nominal rates are to be used for discounting nominal flows, which are often encountered in lease-purchase analysis.

Nominal Interest Rates on Treasury Notes and Bonds
of Specified Maturities (in percent)

3-Year
3.1
5-Year
3.6
7-Year
3.9
10-Year
4.2
30-Year
5.1

Real Discount Rates. A forecast of real interest rates from which the inflation premium has been removed and based on the economic assumptions from the 2004 Budget are presented below. These real rates are to be used for discounting real (constant-dollar) flows, as is often required in cost-effectiveness analysis.

Real Interest Rates on Treasury Notes and Bonds
of Specified Maturities (in percent)

3-Year
1.6
5-Year
1.9
7-Year
2.2
10-Year
2.5
30-Year
3.2

Analyses of programs with terms different from those presented above may use a linear interpolation. For example, a four-year project can be evaluated with a rate equal to the average of the three-year and five-year rates. Programs with durations longer than 30 years may use the 30-year interest rate.

 

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