Calculating Fees on a Loan Commitment You have approached your local bank for a

Question

Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $1,040,000 needed to open a car 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 = $1,040,000, term = 1 year, up-front fee = 20 basis points, back-end fee = 50 basis points, and rate on the loan = 12%. If you immediately take down $790,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

$128,130

$102,080

$98,130

$97,630

Explanation / Answer

Total Interest = Loan taken * Interest Rate * period
Total Interest = 790000 * 12% * 1
Total Interest = 94800

Upfront Fee = 0.20%* size of loan commitment
Upfront Fee = 0.20%* 1040000
Upfront Fee = 2080

Back End Fee = 0.50%* size of loan commitment
Back End Fee = 0.50%* 1040000
Back End Fee = 5200

Total interest and fees = 94800 + 2080 + 5200
Total interest and fees = $ 102,080

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