Use the following statements to answer this question:
A) I and II are correct.
B) I and II are incorrect.
C) I is correct and II is incorrect.
D) I is incorrect and II is correct.
I.An increase in the interest rate of the lease would decrease the PV of rental revenue for an operating lease.
II.An increase in interest rates would decrease the value of assets from the financial lease on the lessor's balance sheet.

Question

Quizplus · Accepted Answer

I is correct because a higher interest rate would mean higher discount rate, which decreases the present value of future rental revenue for an operating lease. So, an increase in the interest rate of the lease would decrease the PV of rental revenue for an operating lease.
II is incorrect because an increase in interest rates would increase the discount rate and thus increase the present value of lease payments received by the lessor. It would increase the value of assets from the financial lease on the lessor's balance sheet.

Use the Following Statements to Answer This Question