Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You want to estimate the country risk premium (over and above the base equity premium) to charge for a company listed in Indonesia, and have

image text in transcribed

You want to estimate the country risk premium (over and above the base equity premium) to charge for a company listed in Indonesia, and have been supplied with the following information: Indonesia is rated BB by S&P, and the corporate bond spread over the treasury bond rate for BB rated bonds is 3.0%. The standard deviation in Indonesian equity prices over the last year has been 84%, while the standard deviation in Indonesian government bond prices has been 21%. a. Estimate the country risk premium for Indonesia. b. You are now trying to estimate the cost of equity, in nominal Rupiah, for an Indonesian paper and pulp firm. The firm has a beta of 0.75. In addition, it derives 80% of its revenues in US dollars, whereas the average Indonesian firm derives only 20% of its revenues in US dollars. Estimate the cost of equity for this firm, if the Indonesian Rupiah riskfree rate is 15%, and the risk premium for mature equity markets is 5.5%.

You want to estimate the country risk premium (over and above the base equity premium) to charge for a company listed in Indonesia, and have been supplied with the following information: Indonesia is rated BB by S&P, and the corporate bond spread over the treasury bond rate for BB rated bonds is 3.0%. The standard deviation in Indonesian equity prices over the last year has been 84%, while the standard deviation in Indonesian government bond prices has been 21%. a. Estimate the country risk premium for Indonesia. b. You are now trying to estimate the cost of equity, in nominal Rupiah, for an Indonesian paper and pulp firm. The firm has a beta of 0.75. In addition, it derives 80% of its revenues in US dollars, whereas the average Indonesian firm derives only 20% of its revenues in US dollars. Estimate the cost of equity for this firm, if the Indonesian Rupiah riskfree rate is 15%, and the risk premium for mature equity markets is 5.5%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

A Fast And Frugal Finance

Authors: William P. Forbes, Aloysius Igboekwu, Shabnam Mousavi

1st Edition

0128124954, 978-0128124956

More Books

Students also viewed these Finance questions