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Draw down occurs at the beginning of the year

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(a) An FI makes a loan commitment of $3.5 million with an up-front fee of 35 basis points and a back-end fee of 12 basis points on the unused portion of the loan. The draw down on the loan is 60 per cent and draw down occurs at the beginning of the year.

(i) What total fees does the FI earn when the loan commitment is negotiated?

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 4 per cent.

Reference no: EM132525440

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