Calculate the Total Fees a Firm Would Have to Pay

question 103

Multiple Choice

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $1,000,000 with an up-front fee of 40 basis points and a back-end fee of 20 basis points. The take-down on the loan is 30 percent.

• A) $1,400
• B) $4,000
• C) $5,400
• D) $6,000

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Definitions:

Government Securities

Financial instruments issued by a government to borrow money, often considered low-risk investments.

Discount Rate

The rate of interest that central banks impose on the credits they extend to commercial banks or financial entities.

Planned Investment

The amount of spending by businesses on capital goods, such as new equipment and buildings, that is intended for future use and production.

Monetary Policy

The process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure stability and economic growth.