Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open an auto 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 = $1,000,000, term = 1 year, up-front fee = 20 basis points, back-end fee = 50 basis points. If you take down 90 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.
A) $2,000
B) $2,500
C) $5,000
D) d.$ 6,500

Question

Quizplus · Accepted Answer

20 basis points equals 0.20% and 50 basis points equals 0.50%.

Upfront fee = $1,000,000 x 0.0020 = $2,000 
Back-end fee = $1,000,000 x 0.0050 = $5,000

Total fees = ($2,000 + $5,000) x 90% = $6,300

Therefore, the correct answer is B) $2,500, which is the sum of the upfront fee and back-end fee calculated above.

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