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CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers

A company has a EUR 50 million revolving credit facility, of which EUR 20 million is drawn. The bank charges a commitment fee of 0.40% a year on the undrawn amount. The annual commitment fee is closest to:

The commitment fee is about EUR 120,000. The fee applies to the undrawn portion of EUR 30 million (50 less 20) at 0.40%. Using the drawn amount gives EUR 80,000 and using the whole facility gives EUR 200,000, both of which use the wrong base.

  1. AEUR 80,000
  2. BEUR 120,000Correct
  3. CEUR 200,000

Explanation

Undrawn amount = 50 − 20 = EUR 30 million. Fee = 30,000,000 × 0.0040 = EUR 120,000. EUR 80,000 applies the fee to the drawn amount, and EUR 200,000 applies it to the full facility.

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