During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $25,000,000, of which you took down $20,000,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $20,000,000) of $110,000 on this loan commitment. You remember that the back-end fee was 60 basis points. Calculate the front-end fee on this loan commitment.
A) 60 basis points
B) 32 basis points
C) 40 basis points
D) 16 basis points

Question

Quizplus · Accepted Answer

The back-end fee is 60 basis points (0.60%) on the amount taken down, which is $20,000,000. So, the back-end fee is $20,000,000 * 0.60% = $120,000. The total fees paid were $110,000, which means the front-end fee must have been included in this total since the back-end fee alone exceeds the total fees paid. This seems to be a mistake in the calculation or the provided information, as the back-end fee calculated exceeds the total fees mentioned. Given the information, it's not possible to accurately calculate the front-end fee based on the provided scenario. The correct approach to find the front-end fee would involve subtracting the actual back-end fee from the total fees paid to find the front-end fee, but the given numbers do not align logically for this calculation.

During the Last Year You Have Had a Loan Commitment