What best describes a Closed End Lease?

What best describes a Closed End Lease?

• A. Lease With No Purchase Option
• B. Must Be Returned
• C. Includes A Guaranteed Residual Value
• D. Allows Ownership Transfer At End

Answer: (A)

A closed-end lease is defined by not having a purchase option at the end; you lease the asset and simply return it when the term ends, with wear-and-tear and mileage considered separately. The key idea is that you’re not obligated to buy the asset, and the lessor bears the depreciation risk. That makes “Lease With No Purchase Option” the best description. The other points describe aspects that can be true in various leases but aren’t the defining feature. The asset being returned at end is typically true for closed-end leases, but that return requirement isn’t what sets the structure apart. A guaranteed residual value is common in many leases and helps establish payments, but isn’t the sole defining trait of a closed-end arrangement. Allowing ownership transfer at end describes a lease that ends in purchase, not a standard closed-end walk-away type.

A closed-end lease is defined by not having a purchase option at the end; you lease the asset and simply return it when the term ends, with wear-and-tear and mileage considered separately. The key idea is that you’re not obligated to buy the asset, and the lessor bears the depreciation risk. That makes “Lease With No Purchase Option” the best description.

The other points describe aspects that can be true in various leases but aren’t the defining feature. The asset being returned at end is typically true for closed-end leases, but that return requirement isn’t what sets the structure apart. A guaranteed residual value is common in many leases and helps establish payments, but isn’t the sole defining trait of a closed-end arrangement. Allowing ownership transfer at end describes a lease that ends in purchase, not a standard closed-end walk-away type.