# Life-Cycle Cost Analysis: Step 6 - Select Discount Rate

## Historic and HEC-17 Approach

Use the Real Discount Rate normally used by the State Highway Agency or Federal Land Management Agency to evaluate transportation projects. Real Discount Rates between 3% and 5% reflect historic trends and the true value of money with no inflation premium.

Use Real Discount Rates (not Nominal Discount Rates, which includes inflation) to discount Real Costs (not Nominal Costs, which are adjusted for inflation or the CPI).

Alternatively, the 5-year rolling average of the 30-year Real Interest Rates found in OMB's Circular A-94, Appendix C may be used as the Discount Rate for analysis periods in the 30 year time frame.

Example:

To calculate the 5-year rolling average for an analysis preformed in 2015, add the past 5-years of the Real Treasury Interest Rate for a 30-year maturity and divide by five:

2012 2.0%

2013 1.1%

2014 1.9%

2015 1.4%

2016 1.5%

Sum = 7.9% divided by 5 = 1.58%

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