Reading 43: Valuation in Emerging Markets - LOS d, (Part 2 black

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1.Country-risk premiums tend to:

A)   increase when government credit issues grow.

B)   become part of the local government risk-free rate.

C)   increase over the long run as emerging markets become more volatile as investments increase.

D)   decrease toward zero over the long run as emerging markets become integrated into the global market.

2.Country risk for an emerging market company is generally incorporated into the:

A)   credit risk premium.

B)   sovereign risk premium.

C)   risk-free rate.

D)   market-risk premium.

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答案和详解如下：

1.Country-risk premiums tend to:

A)   increase when government credit issues grow.

B)   become part of the local government risk-free rate.

C)   increase over the long run as emerging markets become more volatile as investments increase.

D)   decrease toward zero over the long run as emerging markets become integrated into the global market.

The correct answer was D)

Over the long run, it is assumed that the country-risk premium will approach zero as the emerging market becomes integrated into the international markets.

2.Country risk for an emerging market company is generally incorporated into the:

A)   credit risk premium.

B)   sovereign risk premium.

C)   risk-free rate.

D)   market-risk premium.

The correct answer was B)

The sovereign risk premium consists of both credit and country-risk premiums.