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

c. 6

Reason: compounding every 2 months means there are 12/2 = 6 compounding periods per year, so n = 6 in the formula (1 + r/n)^n - 1.