Assume a bank grants a loan commitment at an interest rate of 10 per cent p.a. and the risk premium on the loan is 2 per cent. The bank charges borrowers an upfront fee on the whole commitment of 0.25 per cent and a back-end fee on any unused proportion of the loan of 0.5 per cent. The compensating balance is 10 per cent and so are reserve requirements. Assume that the average draw-down of the loan is 80 per cent over the time of the loan commitment. What is the promised return on the loan commitment (round to two decimals)?
A) 12.00 per cent
B) 12.75 per cent
C) 13.23 per cent
D) 13.67 per cent

Question

Quizplus · Accepted Answer

The Answer of Assume a bank grants a loan commitment at an interest rate of 10 per cent p.a. and the risk premium on the loan is 2 per cent. The bank charges borrowers an upfront fee on the whole commitment of 0.25 per cent and a back-end fee on any unused proportion of the loan of 0.5 per cent. The compensating balance is 10 per cent and so are reserve requirements. Assume that the average draw-down of the loan is 80 per cent over the time of the loan commitment. What is the promised return on the loan commitment (round to two decimals)?
A) 12.00 per cent
B) 12.75 per cent
C) 13.23 per cent
D) 13.67 per cent

Assume a Bank Grants a Loan Commitment at an Interest