An origination fee
A) increases the yield on a loan to the bank
B) increases the amount of money the firm may borrow
C) reduces the cost of a loan to the borrower
D) increases the discount on commercial paper

Question

An origination fee​
A) ​increases the yield on a loan to the bank
B) ​increases the amount of money the firm may borrow
C) ​reduces the cost of a loan to the borrower
D) ​increases the discount on commercial paper

Quizplus · Accepted Answer

An origination fee is a fee charged by lenders to process a loan application. It is typically a percentage of the loan amount, and it is added to the borrower's loan balance. This fee increases the yield on a loan to the bank or lender, as it is a source of additional revenue for them. This is because even though the borrower may pay the fee upfront, it effectively increases the total amount that they will have to repay over the life of the loan. Therefore, the origination fee is an additional cost to the borrower, and it does not reduce the cost of the loan. Additionally, it does not increase the amount of money the firm may borrow, nor does it increase the discount on commercial paper.

An Origination Fee​

An Origination Fee