Assume a bank makes a loan commitment to the value of $10m at a fixed interest rate of 10 per cent p.a. for a period of one year. Assume the borrower only uses 50 per cent of the provided funds over the course of the year. If the bank charges a back-end fee of 0.5 per cent, what is the additional revenue the bank would generate?
A) None, unless the loan is prepaid early.
B) $2500
C) $25 000
D) $5000

Question

Quizplus · Accepted Answer

The back-end fee is charged on the unused portion of the loan commitment. The unused portion is $5m (50% of $10m). The fee is 0.5% of $5m, which equals $25,000.

Assume a Bank Makes a Loan Commitment to the Value