Assume a Bank Makes a Loan Commitment to the Value

Multiple Choice

Assume a bank makes a loan commitment to the value of $10m at a fixed interest rate of 10 per cent p.a. for a period of one year. Assume the borrower only uses 50 per cent of the provided funds over the course of the year. If the bank charges a back-end fee of 0.5 per cent, what is the additional revenue the bank would generate?

A) None, unless the loan is prepaid early.
B) $2500
C) $25 000
D) $5000