Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $1,000,000 with an up-front fee of 40 basis points and a back-end fee of 20 basis points. The take-down on the loan is 30 percent.
A) $1,400
B) $4,000
C) $5,400
D) $6,000

Question

Quizplus · Accepted Answer

The total fees include both the up-front fee and the back-end fee. The up-front fee is 40 basis points of the total commitment, which is 0.40% of $1,000,000 = $4,000. The take-down is 30% of $1,000,000 = $300,000. The back-end fee is 20 basis points of the take-down amount, which is 0.20% of $300,000 = $600. Therefore, the total fees are $4,000 (up-front) + $600 (back-end) = $4,600.

Calculate the Total Fees a Firm Would Have to Pay