Schweser-Book2 Page 250 - Professors Note Where did this formulae come from? PV(Operating Lease) = [PV(Capital Lease)/ Total Capital Lease Payment]*[Total Future Operating Lease Payment]
Swaptiongamma, i think this formula is a logical approximation. Assume that a capital lease with a value of 100 has a present value of 90. so, Present value of capital lease/future value of capital lease= 90/100=.9 ; gives you a rough approximation of the rate of the capital lease. Assuming that the capital and operating lease are taken at the same rate, .9*(future value of operating lease) should give an approximation for the present value of the operating lease. Hope this helps.
too good nimz. Thanks!
Thanks swaption. I have just started to contribute on this forum after being a passive visitor for so long cause I kept thinking my concepts are flawed. My confidence level is increasing. Thanks :).