Jessica’s bank is offering her a loan with a stated rate of 4.90% interest. if the interest is compounded every two months, what will jessica really pay for interest?
a.
4.90%
b.
5.00%
c.
5.01%
d.
4.96%

B

Step-by-step explanation:

Here, we want to find the effective interest rate. It goes by the formula:

Effective Interest Rate =

Where

i is the stated interest rate (here, it is 4.90% or 0.049)

n is the number of compounding in a year (since it is compounded every 2 months and there are 12 months in a year, the number of compounding is 6, hence n = 6)

Plugging these information into the formula, we get:

In percentage, 0.05 * 100 = 5%

B is the right answer.