Question: A FI makes a loan commitment of $2.5 million with an up-front fee of 50 basis points and a back-end fee of 25 basis points

A FI makes a loan commitment of $2.5 million with an up-front fee of 50 basis points and a back-end fee of 25 basis points on the unused portion of the loan. The takedown on the loan is 50 percent and takedown occurs at the beginning of the year.
a. What total fees does the FI earn when the loan commitment is negotiated?
b. What are the total fees earned by the FI at the end of the year, that is, in future value terms? Assume the cost of capital for the FI is 6 percent.

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a Upfront fee 2500000 x 00050 12500 b Adjustment has not been made for the fact that ... View full answer

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