You Have Approached Your Local Bank for a Start-Up Loan

question 68

Multiple Choice

You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open an auto repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $1,000,000, term = one year, up-front fee = 20 basis points, back-end fee = 50 basis points. If you take down 90 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

• A) $2,000
• B) $2,500
• C) $5,000
• D) $6,500

---

Definitions:

Portfolio

A portfolio consisting of various financial instruments such as stocks, bonds, commodities, cash, and cash alternatives, along with mutual funds and ETFs.

Risk Averse

The preference to avoid uncertainty, expressing a behavior where individuals prefer known risks over unknown outcomes.

Financial Investment

Allocating money into an asset or a project with the expectation of generating income or profit.

Government Bond

A type of investment where an investor loans money to a government in exchange for periodic interest payments plus the return of the bond's face value at maturity.