A $200 million loan commitment has an up-front fee of 20 basis points and a back-end fee of 25 basis points on the unused portion.

If 25 percent of the commitment is taken down,the total fees are
A)$250,000.
B)$4,000,000.
C)$400,000.
D)$775,000.

Question

A $200 million loan commitment has an up-front fee of 20 basis points and a back-end fee of 25 basis points on the unused portion.

If 25 percent of the commitment is taken down,the total fees are
A)$250,000.
B)$4,000,000.
C)$400,000.
D)$775,000.

Quizplus · Accepted Answer

The up-front fee is 20 basis points which is 0.2%. So, the up-front fee would be:
0.002 * $200,000,000 = $400,000

If 25% of the commitment is taken down, the remaining unused portion is:
$200,000,000 - (0.25 * $200,000,000) = $150,000,000

The back-end fee is 25 basis points which is 0.25%. So, the back-end fee on the unused portion would be:
0.0025 * $150,000,000 = $375,000

Therefore, the total fees would be:
$400,000 + $375,000 = $775,000

Hence, the correct answer is D.

A $200 Million Loan Commitment Has an Up-Front Fee of 20