Calculating Fees on a Loan Commitment During the Last Year

question 9

Multiple Choice

Calculating Fees on a Loan Commitment During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business.The total line available was $500,000,of which you took down $400,000.It is now the end of the loan commitment period and your bank is asking you to 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 $400,000) of $1,750 on this loan commitment.You remember that the up-front fee was 25 basis points.What is the back-end fee on this loan commitment?

• A)5 basis points
• B)50 basis points
• C)10 basis points
• D)20 basis points

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Definitions:

Compounded Quarterly

Interest calculation method where interest is added to the principal sum of a deposit or loan every quarter, leading to interest amounts that accumulate at a faster rate than annual compounding.

Compounded Monthly

The process where interest earned is added to the principal, so that from that moment on, the interest that has been added also earns interest.

Motor Home

A type of self-propelled recreational vehicle (RV) that offers living accommodation combined with a vehicle engine.

Extra Payments

Payments made on a loan that exceed the minimum required payment, often used to reduce the loan balance more quickly.