Code of Federal Regulations (alpha)

CFR /  Title 31  /  Part 359  /  Sec. 359.14 How are composite rates determined?

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 x (Fixed rate / 2)]{time} x 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 x 0.0200 / 2)] x2

Composite rate = [0.0100 + 0.0028 + 0.000028] x2

Composite rate = 0.012828 x 2

Composite rate = 0.025656

Composite rate = 0.0257 (rounded)

Composite rate = 2.57% (rounded)---------------------------------------------------------------------------