What are the total funds committed on the loan

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Question - A financial institution has issued a one-year loan commitment of $2 million for an upfront fee of 25 basis points. the back-end fee on the unused portion of the commitment is 10 basis points. the financial institution requires a compensating balance of 5 percent as demand deposits. the financial institution's cost of funds is 6 percent, the interest rate on the loan is 10 percent, and reserve requirements on demand deposits are 8 percent. The customer is expected to draw down 80 percent of the commitment at the beginning of the year.

(a) What is the total revenue generated by the financial institution on the loan?

(b) What are the total funds committed on the loan?

(c) What is the expected return on the loan?

Reference no: EM132999506

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