Operating Leases Are More Complicated to Value Than Financial Leases

question 3

Multiple Choice

Operating leases are more complicated to value than financial leases because _____.

• A)the lessee cannot return the asset except with substantial penalties
• B)it is difficult to find the appropriate discount rate
• C)of the uncertainty about the length of the lease
• D)it is difficult to predict the cash flows.

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Definitions:

Asset Universe

The complete set of assets considered for investment by a particular fund or strategy.

Investment Company

A corporation or trust engaged in the business of investing the pooled capital of investors in financial securities.

Risk Aversion

The tendency of investors to prefer safer or less risky investments over riskier options.

Historical Standard Deviation

A statistical measure of market volatility based on past price movements.