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?

Compounding every two months means interest is added 6 times per year. The effective annual rate is (1 + 0.049/6)^6 − 1, which is about 0.05001, or 5.001%. Rounded to the nearest hundredth of a percent, Jessica really pays 5.00% interest, choice B.

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