Computer systems are prime examples of assets whose

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Unformatted text preview: leased for a longer period. Computer systems are prime examples of assets whose relative efficiency is expected to diminish as the technology changes. The operating lease is therefore a common arrangement for obtaining such systems, as well as for other relatively short-lived assets such as automobiles. CHAPTER 16 Hybrid and Derivative Securities 675 If an operating lease is held to maturity, the lessee at that time returns the leased asset to the lessor, who may lease it again or sell the asset. Normally, the asset still has a positive market value at the termination of the lease. In some instances, the lease contract gives the lessee the opportunity to purchase the leased asset. Generally, the total payments made by the lessee to the lessor are less than the lessor’s initial cost of the leased asset. Financial (or Capital) Leases financial (or capital) lease A longer-term lease than an operating lease that is noncancelable and obligates the lessee to make payments for the use of an asset over a predefined period of time; the total payments over the term of the lease are greater than the lessor’s init...
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