Question
You are trying to estimate the country equity risk premium for Poland. You find that S&P has assigned an A rating to Poland and that
You are trying to estimate the country equity risk premium for Poland. You find that S&P has assigned an A rating to Poland and that Poland has issued euro-denominated Bonds that yield 7.6%. in the market currently. Germany, a AAA-rated ocuntry, has euro-denominated bonds outstanding that yield 5.1%. a) Estimate the country risk premium, usingthe default spread on the country bond as proxy. b) If you were told that the standard deviation in the Polish equity market was 25% and that the standard deviation in the polish euro bond was 15%, estimate the country risk premium.
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