Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open a car 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 = $1,000,000,term = one year,up-front fee = 20 basis points,back-end fee = 50 basis points,and rate on the loan = 9 percent.If you immediately take down $750,000 and no more during the year,what is the total interest and fees you have paid on this loan commitment?
A)$70,250
B)$70,750
C)$74,500
D)$93,250

Question

Quizplus · Accepted Answer

First, we need to calculate the fees:

Up-front fee = $1,000,000 x 0.0020 = $2,000 
Back-end fee = $1,000,000 x 0.0050 = $5,000

Total fees = $2,000 + $5,000 = $7,000

Next, we need to calculate the interest:

Total amount borrowed = $750,000 
Rate on loan = 9%

Interest = $750,000 x 0.09 = $67,500

Total interest and fees = $67,500 + $7,000 = $74,500

Therefore, the answer is B, $70,750.

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