Question

When calculating a loan’s effective rate, if the interest compounds every two months, what value of n do you plug into your equation? a. 2 b. 0. 167 c. 6 d. 60.

Answer 1

When calculating a loan's effective rate and interest compounds every two months then the value of n would be 6.

In a year there are 12 months and when the interest rate is said to be compounded in every two months then it implies that the number of months would be 6 months.

Thus, the calculation of compounded interest would be derived with the following formula:

$A=P(1+\frac{r}{m} )^{mt}$

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