Residual/Unguaranteed Residual is defined as which of the following?

Residual/Unguaranteed Residual is defined as which of the following?

• A. The initial down payment
• B. Monthly rent
• C. The depreciated value
• D. The estimated fair value of lease property at end of term

Answer: (D)

In a lease, the residual value is the expected market value of the leased asset at the end of the term. An unguaranteed residual means that value is not guaranteed by the lessee or any guarantor; the lessor takes on the risk that the asset’s end-of-term value may differ from the estimate. This is why the correct description is the estimated fair value of the lease property at the end of the term. The other options describe an upfront down payment, ongoing monthly payments, or the asset’s depreciated book value, none of which capture end-of-term value.

In a lease, the residual value is the expected market value of the leased asset at the end of the term. An unguaranteed residual means that value is not guaranteed by the lessee or any guarantor; the lessor takes on the risk that the asset’s end-of-term value may differ from the estimate. This is why the correct description is the estimated fair value of the lease property at the end of the term. The other options describe an upfront down payment, ongoing monthly payments, or the asset’s depreciated book value, none of which capture end-of-term value.