Question

Casey’s One Stop has been approved for a $267,500 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 65 basis points, back-end fee = 30 basis points, and rate on the loan = 7.00 percent. Casey’s expects to immediately take down $256,000 and no more during the year unless there is some unforeseen need.

Calculate the total interest and fees Casey’s One Stop can expect to pay on this loan commitment. (Round your answer to 2 decimal places.)

Total interest and fees

$

Answer 1

Answer

Interest is charged only on amount of loan that is utilised. On the remaining portion bank charges Commitment Charges.

Amount of Interest to be paid {assuming Annual Compounding} = Loan Utilised * Rate of Interest

= $ 256000 * 0.07

= $ 17920

Amount of Fees to be Charged by Bank :

• UPFRONT FEE = (Amount of Loan Sanctioned * Upfront fee Rate)

?= $ 267500 * 0.65%

= $ 1738.75

• BACKEND FEE = (Amount of Loan Sanctioned * Backend fee Rate)

?= $ 267500 * 0.30%

= $ 802.5

Total Fees = $ 1738.75 (+) $ 802.5

= $ 2541.25