CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers
A company has a EUR 200 million revolving credit facility with EUR 120 million drawn. The drawn portion bears interest of 4.00% and the undrawn portion carries a commitment fee of 0.50%. The total annual financing cost on the facility is closest to:
Total cost is EUR 5.2 million: interest of EUR 4.8 million on the EUR 120 million drawn at 4.00%, plus a commitment fee of EUR 0.4 million on the EUR 80 million undrawn at 0.50%. Omitting the fee gives EUR 4.8 million, which is too low.
- AEUR 4.8 million
- BEUR 5.2 millionCorrect
- CEUR 5.3 million
Explanation
Interest on drawn amount: 120 x 4.00% = 4.80 million. Undrawn amount = 200 - 120 = 80 million, fee = 80 x 0.50% = 0.40 million. Total = 5.20 million. Ignoring the fee gives 4.8; applying the fee to the whole limit (1.0) gives 5.8, and neither matches.
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