# A tricky FSA question on lease

The Camden Company has just leased the following piece of equipment: Market value of \$200,000. Useful life of 5 years with no salvage value. Lease term is 4 years. Annual lease payment is \$30,000 and the lease rate is 11%. The company’s overall borrowing rate is 9.5%. The firm can purchase the equipment at the end of the lease period for \$45,000. What amount should be recorded on lessee’s balance sheet? A) \$93,073. B) \$127,435. C) \$122,716. D) \$96,134.

Choice D It is a capital lease because life of lease = 80% of life of asset PMT=30, I/Y=9.5 (lower of lease rate, and borrowing rate), N=4 PV = 96134

D?

Add one more The lower bound on European call option prices can be adjusted for cash flows of the underlying asset by: A) adding the present value of the expected dividend payments to the current asset price. B) subtracting the present value of the expected dividend payments from the current asset price. C) subtracting the present value of the expected dividend payments from the exercise price. D) adding the present value of the expected dividend payments to the exercise price.

B) subtracting the present value of the expected dividend payments from the current asset price.

I got wrong on this FSA question, cuz I neglected the rule of lower borrowing rate or implicit lease rate in my study. So my post is to remind other ones like me this principle. To my great surprise, you guys are TOOOOOOO master on this subject. Clearly, more work to do for me.

naivejoe Wrote: ------------------------------------------------------- […] > To my great surprise, you guys are TOOOOOOO master > on this subject. Clearly, more work to do for me. well, cpk is anyway. I was gonna say that cpk is on fire today, but then s/he is on fire every day, so…

it is a he!

hahaha

it bugs me how english doesnt have a gender neutral 3rd person, singular, so I prefer to say s/he to refer to both

and I had to come up with “it” is a “he” over which naivejoe had a big laugh!!!

LOL, ok this syntactic stuff is getting a bit too complicated