Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $500,000 needed to open a furniture 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 = $500,000,term = one year,up-front fee = 30 basis points,back-end fee = 60 basis points,and rate on the loan = 10 percent.If you immediately take down $250,000 and no more during the year,what is the total interest and fees you have paid on this loan commitment?
A)$27,250
B)$28,000
C)$29,500
D)$53,000

Question

Quizplus · Accepted Answer

First, we need to calculate the fees on the loan commitment:
Up-front fee = $500,000 x 0.0030 = $1,500
Back-end fee = $500,000 x 0.0060 = $3,000
Total fees = $1,500 + $3,000 = $4,500

Next, we need to calculate the interest on the taken down funds:
Interest on $250,000 for one year = $250,000 x 0.10 = $25,000

Therefore, the total interest and fees paid on the loan commitment is:
$25,000 + $4,500 = $28,500

The closest answer to this is B ($28,000), which is the best choice.

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