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 = 1 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) $1000
B) $1080
C) $1600
D) $2520

Question

Quizplus · Accepted Answer

First, we need to convert the basis points into percentages by dividing by 100.

Up-front fee = 50/100 = 0.5%
Back-end fee = 80/100 = 0.8%

Total loan commitment = $200,000
Amount taken down = 95% of $200,000 = $190,000

Calculating fees: 
Up-front fee = 0.5% x $190,000 = $950 
Back-end fee = 0.8% x $190,000 = $1,520

Total fees = $950 + $1,520 = $2,470

Therefore, the closest option is B) $1080, which is incorrect. The correct answer is option B) $2,470.

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