medium · Asset-Backed Securities
A middle-market lease pool includes a concentration of construction equipment.
How would an analyst forecast the 'residual value' for this equipment during a stressed scenario?
- By applying haircuts to the booked values based on the historical volatility of secondary market auction prices for similar models.
- By using the original manufacturer's suggested retail price (MSRP) and applying a straight-line 10% annual depreciation.
- By relying solely on the lessee's credit rating to determine if the residual will be paid.
- By assuming the equipment will always be sold for at least its scrap metal value at the end of the term.
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