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 $10,000,000, of which you took down $9,125,000. It is now the end of the loan commitment period and your bank had you 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 $9,125,000) of $31,100 on this loan commitment. You remember that the back-end fee was 85 basis points. Calculate the front-end fee on this loan commitment.
A) 31 basis points
B) 28 basis points
C) 26 basis points
D) 24 basis points

Question

Quizplus · Accepted Answer

The total fees paid were $31,100. The back-end fee, which is 85 basis points (0.85%) of the amount taken down ($9,125,000), equals $77,562.50. Subtracting this from the total fees gives the front-end fee amount, which when calculated as a percentage of the total line available ($10,000,000), results in 24 basis points.

During the Last Year You Have Had a Loan Commitment