Composite rates are set according to the following formula (See appendix A to part 359 for examples of calculations involving composite interest rates.):

Composite rate = {(Fixed rate ÷ 2) + Semiannual inflation rate + [Semiannual inflation rate × (Fixed rate ÷ 2)]} × 2. ²

² Example for I bonds issued May 2002-October 2002: Fixed rate = 2.00% Inflation rate = 0.28% Composite rate = [0.0200 ÷ 2 + 0.0028 + (0.0028 × 0.0200 ÷ 2)] × 2 Composite rate = [0.0100 + 0.0028 + 0.000028] × 2 Composite rate = 0.012828 × 2 Composite rate = 0.025656 Composite rate = 0.0257 (rounded) Composite rate = 2.57% (rounded)