Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $200,000 needed to open a computer repair store.You have requested that the term of the loan be one year.Your bank has offered you the following terms: size of loan commitment = $200,000,term = one year,up-front fee = 50 basis points,back-end fee = 80 basis points.If you take down 95 percent of the total loan commitment,calculate the total fees you have paid on this loan commitment.
A)$1,000
B)$1,080
C)$1,600
D)$2,520

Question

Quizplus · Accepted Answer

First, we need to calculate the up-front fee and the back-end fee.

Up-front fee = $200,000 x 0.005 = $1,000

Back-end fee = $200,000 x 0.008 = $1,600

Total fees = Up-front fee + Back-end fee

If you take down 95 percent of the loan commitment, the amount you will receive is:

Loan amount = $200,000 x 0.95 = $190,000

Total fees = ($1,000 + $1,600) x 0.95 = $2,520 x 0.95 = $2,394

Therefore, the correct answer is B.

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