Calculating Fees on a Loan Commitment Starr Co. has been approved for a $100,000 loan commitment from its local bank. The bank has offered the following terms: term = 1 year, up-front fee = 75 basis points, back-end fee = 25 basis points, and rate on the loan = 8.00%. Starr expects to immediately take down $80,000 and no more during the year unless there is some unforeseen need. What is the total interest and fees Starr can expect to pay on this loan commitment?
A) $7050
B) $7175
C) $7200
D) $7400

Question

Quizplus · Accepted Answer

The total interest and fees Starr can expect to pay on this loan commitment is $7050. The up-front fee is 75 basis points, which is 0.75% of the loan amount, or $750. The back-end fee is 25 basis points, which is 0.25% of the loan amount, or $250. The interest on the loan is 8.00%, which is $8,000 per year. The total interest and fees are $750 + $250 + $8,000 = $7,050.