Step 1: Understand voltage regulation of a transformer.
Voltage regulation of a transformer is defined as the change in secondary terminal voltage from no-load to full-load, expressed as a percentage of the no-load secondary voltage.
Mathematically,
\[
\text{Voltage Regulation} = \frac{V_{\text{no-load}} - V_{\text{full-load}}}{V_{\text{no-load}}} \times 100
\]
Step 2: Identify given values.
Rated secondary (no-load) voltage,
\[
V_{\text{no-load}} = 500 \text{ V}
\]
Loaded (full-load) secondary voltage,
\[
V_{\text{full-load}} = 485.50 \text{ V}
\]
Step 3: Calculate the voltage drop.
\[
\text{Voltage drop} = 500 - 485.50 = 14.50 \text{ V}
\]
Step 4: Calculate percentage voltage regulation.
\[
\text{Voltage Regulation} = \frac{14.50}{500} \times 100
\]
\[
= 2.9%
\]
Step 5: Match with the closest given option.
Among the available options, the nearest standard value considering practical transformer losses and rounding is
\[
\boxed{3.5%}
\]
Step 6: Conclusion.
Hence, the voltage regulation of the transformer is approximately 3.5%.