does the n in the formula 1 i n always mean compounding on an annual basis 613210

Rental rebates

The lease arrangements are as in, except that at end of the lease, the lessee sells the vehicle as agent for the lessor, and if it is sold for

(i) up to £3,000, the guaranteed residual value, all of the proceeds are received by the lessor; or

(ii) more than £3,000, 99% of excess is repaid to the lessee. The lessee does not have to make good any deficit, should one arise.

In this example, it appears that the lessor is using the sale proceeds to meet its unguaranteed residual value but it is also taking the first loss provision. Only thereafter does the lessee gain or lose from the fluctuations in the fair value. The lessee’s minimum lease payments have a net present value of €7,365, it has not guaranteed the residual value at all and is not exposed to any risk of any fall in value, although it may benefit from increases in the fair value in excess of €3,000. On balance this indicates that the arrangement is an operating lease.