During the Last Year You Have Had a Loan Commitment

question 97

Multiple Choice

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $10,000,000, of which you took down $7,800,000. It is now the end of the loan commitment period and your bank had you pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $7,800,000) of $51,200 on this loan commitment. You remember that the back-end fee was 112 basis points. Calculate the front-end fee on this loan commitment.

• A) 31 basis points
• B) 27 basis points
• C) 25 basis points
• D) 23 basis points

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Definitions:

Functions of Prices

The role prices play in indicating the scarcity of goods and allocating resources in an economy.

Market System

An economic system whereby decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.

Invisible Hand

A term coined by Adam Smith to describe the self-regulating nature of the marketplace, where individuals working for their own gain unintentionally benefit society.

Wealth of Nations

A seminal book by Adam Smith that examines how nations achieve wealth and economic growth.