Final answer:
The "real" interest rate for a loan where the interest is deducted in advance is higher than the nominal rate because you are receiving less than the nominal amount to use, but still have to repay the full loan amount including the deducted interest.
Step-by-step explanation:
If your bank gives you a $2,000 loan at 8% per year, but deducts the interest in advance, the "real" rate of interest that you will pay is not the nominal rate of 8%. When banks deduct the interest upfront, you receive less than the nominal amount of the loan because the interest is paid at the beginning rather than over the life of the loan. As a result, the effective interest rate is actually higher than the nominal 8% because the percentage is calculated on the full loan amount, yet you have access to less money.
For example, let's calculate quick numbers. If the bank removes 8% of $2,000 upfront for one year, that's $160, so you would actually receive $1,840. However, you're still required to pay back $2,000 at the end of the term. The real interest rate is calculated by considering this aspect and is, therefore, higher than 8%. Hence, the answer to the question is: c. No. The interest rate is actually higher than 8 percent.