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

The up-front fee is 50 basis points, which is 0.5%, of the loan commitment of $200,000, which is $1,000. The back-end fee is 80 basis points, which is 0.8%, of the amount of the loan taken down, which is 95% of $200,000, or $190,000, which is $1,520. The total fees paid are $1,000 + $1,520 = $2,520.

You Have Approached Your Local Bank for a Start-Up Loan