Assume a Bank Makes a Loan Commitment to the Value

question 9

Multiple Choice

Assume a bank makes a loan commitment to the value of $10 million at a fixed interest rate of 10% per annum for a period of one year.Assume the borrower only uses 50% of the provided funds over the course of the year.If the bank charges a back-end fee of 0.5%, what is the additional revenue the bank would generate?

• A)None, unless the loan is prepaid early.
• B)$2500
• C)$25 000
• D)$5000

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Definitions:

Acquisition-Date Fair Value

The fair value of an asset or liability measured at the date a business combination is effected.

Bonds Payable

A long-term liability account on a company’s balance sheet that represents the amount owed to bondholders by the issuer, to be repaid at a future date.

Unamortized Premium

Unamortized Premium is the portion of the bond premium that has not yet been expensed and is allocated over the remaining life of the bond as an adjustment to interest expense.