Using Finance Lease to Calculate Rate Implicit in the Lease (RIIL)

CFA Level II FRA
#1

Hi folks,

I attached the question

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image873×345 28.3 KB

I understand the signs and magnitude for N and FV.

But I don’t understand:

  1. Why is PMT = 10 and not -10? Isn’t this an outflow?
  2. Why is PV = -125? Why is the fair value of $120 million treated as an outflow?

Thanks in advance!

#2

It appears that they’re doing the calculation from the viewpoint of the lessor.

#3

OH. Yes. You are right. Thanks @S2000magician !

#4

My pleasure.