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

The total interest and fees paid on the loan commitment can be calculated as follows:- Up-front fee = 30 basis points of $500,000 = 0.30% * $500,000 = $1,500- Back-end fee = 60 basis points of the undrawn portion ($500,000 - $250,000 = $250,000) = 0.60% * $250,000 = $1,500- Interest on the loan = 10% of $250,000 = $25,000Total interest and fees = $1,500 (up-front fee) + $1,500 (back-end fee) + $25,000 (interest) = $28,000.

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