Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of 20 basis points. The take-down on the loan is 80 percent.
A) $10,000
B) $25,000
C) $27,000
D) $33,000

Question

Quizplus · Accepted Answer

The total fees include the up-front fee and the back-end fee. The up-front fee is 50 basis points (0.50%) of the total commitment of $5,000,000, which equals $25,000 (0.005 * $5,000,000). The take-down is 80% of $5,000,000, which equals $4,000,000. The back-end fee is 20 basis points (0.20%) of the take-down amount, which equals $8,000 (0.002 * $4,000,000). Therefore, the total fees are $25,000 (up-front) + $8,000 (back-end) = $33,000.

Calculate the Total Fees a Firm Would Have to Pay