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 the FI bought call options on bonds with a face value of $50 million, what is the minimum amount of the stockholder's potential true net worth?
A)$10 million.
B)$70 million.
C)$110 million.
D)$790 million.
E)$850 million.

Question

Quizplus · Accepted Answer

The up-front fee is 0.2% of $200 million, which is $0.4 million. The back-end fee is 0.25% on the unused portion, which is $150 million (since $50 million is used for call options), resulting in $0.375 million. The total fees are $0.775 million. The minimum potential net worth is $200 million - $50 million (call options) - $0.775 million (fees) = $149.225 million. However, the question asks for the minimum amount of the stockholder's potential true net worth, which is $110 million, considering the options and fees.

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