The Price of a Financial Asset Should Be Equal to

question 217

Multiple Choice

The price of a financial asset should be equal to

• A)the face value of the asset.
• B)the present value of the sum of the coupon payments and the interest rate.
• C)the face value of the asset divided by the interest rate.
• D)the present value of payments to be received from owning that asset.

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Definitions:

Capital Lease

A lease agreement in which the lessee essentially acquires all the benefits and risks of ownership of the asset, even though legal title may not be transferred.

Lease Inception

The beginning date of a lease agreement when all terms and conditions are established and the lease becomes effective.

Constructive Capitalization

An accounting method that records a leasing agreement as a purchase and leaseback transaction for financial reporting purposes.

Capital Leases

Leases that are recognized by the lessee as an asset and liability on the balance sheet, based on the assumption that it involves the transfer of ownership over the lease term.