Casey’s One Stop has been approved for a $147,500 loan commitment from its local
ID: 2788175 • Letter: C
Question
Casey’s One Stop has been approved for a $147,500 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 50 basis points, back-end fee = 25 basis points, and rate on the loan = 7.25 percent. Casey’s expects to immediately take down $141,000 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.)
$
The answer is not.......................................
Interest = $141,000*7.25% = $10,222.50.
Front End Fees = $147,500*0.50% = $737.50.
Back End Fees = $147,500*0.25% = $368.75
Casey’s One Stop has been approved for a $147,500 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 50 basis points, back-end fee = 25 basis points, and rate on the loan = 7.25 percent. Casey’s expects to immediately take down $141,000 and no more during the year unless there is some unforeseen need.
Explanation / Answer
Upfront fee is the amount of fee Casey expects to pay at the beginning of the period when loan has been granted at 0.50 % per annum on the loan commitment amount
Up-front fees = $147,500 *0.50 % = $737.50
Interest rate is the amounts which Casey has to pay at the rate of 7.25% on the amount immediately take down
Interest = $141,000*7.25% = $10,222.50
Back-end fee is the amount of fee Casey expects to pay on the difference between the loan commitment amount and the amount immediately taken at the rate of 0.25%
Back-end fees = ($147,500-$141,000) *0.25% = $16.25
Therefore total interest and fees = Up-front fees + Interest + Back-end fees
=$737.50 + $10,222.50 + $16.25
= $ 10,976.25