How does cost of capital affect calculations of loan fee income for a financial institution?
Question: An FI makes a loan commitment of $2,500,000 with an up-front fee of 50 basis points and a back-end fee of 25 basis points on the unused portion of the loan. The takedown on the loan is 50%.
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 6%
I don't understand how the cost of capital fits into this problem... is it relevant at all?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/finance/how-does-cost-of-capital-affect-calculations-of-loan-fee-income-for-a-financial-institution-212
... (2) When only 50% loan is taken.
Upfront fees = 0.5%*2,500,000 = $12,500
Future value = 12,500*(1.06) = ...