Question

A line of credit has a limit of $500,000 and had an average of $200,000 for July.

How much is the commitment fee for the month, if it has an APR of 0.5% compounded daily?

Answer 1

Commitment fee is to be levied on the unutilized portion of the line of credit.

Given, Line of credit= $500,000.

Average utilization= $200,000.

Therefore, amount qualifying for commitment fee (A)= $500,000-$200,000 = $300,000

Commitment fee= A*((1+APR/365)^D)-1)

Where D=number of days

Given, A= $300,000 as above, APR=0.5% and D=31 (since it is July)

Therefore, commitment fee= $300,000*((1+05%/365)^31-1) = $300,000*0.000424745

=$127.4234413 Rounded to $ 127.42