You have approached your local bank for a start-up loan commitment for $175,000 needed to open a computer 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 = $175,000, term = 1 year, up-front fee = 75 basis points, back-end fee = 80 basis points. If you take down 75 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.
A) $2,712.50
B) $1,312.50
C) $1,550.00
D) $1,662.50

Question

Quizplus · Accepted Answer

75 basis points = 0.75%
80 basis points = 0.80%

Up-front fee = $175,000 x 0.75% = $1,312.50
Back-end fee = $175,000 x 0.80% = $1,400.00

If you take down 75% of the loan commitment:
Loan received = $175,000 x 0.75 = $131,250

Total fees paid = Up-front fee + Back-end fee 
= $1,312.50 + $1,400.00 
= $2,712.50

Therefore, the best choice is D.

You Have Approached Your Local Bank for a Start-Up Loan