Which of the Following Is True of Commitment Fees

question 19

Multiple Choice

Which of the following is true of commitment fees?

• A)Commitment fees are in the neighborhood of one quarter of 1% per year.
• B)Commitment fees are approximately three-fourth of 1% per year.
• C)Commitment fees are usually half of the risk-free rate.
• D)Commitment fees are in the neighborhood of the risk-free rate.

---

Definitions:

Carrying Cost

Carrying cost refers to the total cost of holding inventory, including storage, insurance, taxes, opportunity costs, and depreciation.

Order Cost

The administrative and logistical expenses associated with making and processing an order for goods or services.

Economic Order Quantity

An inventory management formula that determines the ideal order size to minimize the costs of holding and ordering inventory.

Variable Cost

Variable cost refers to expenses that change in proportion to the activity of a business, such as costs for raw materials or production that increase or decrease based on the volume of production.