Country Risk Premium - Question she, comparable, government, corporate

burnsy562000

Q . Yield of U.S.-denominated bond of foreign government is 14 percent. The bond is BB rated. The comparable BB-rated U.S. corporate bond yield is 7 percent. The 10-year U.S. T-bond yields 4 percent.
Can someone please answer and as well explain how he/she got the answer ?

Mechanic

Schweser says this
BB-rated credit yield spread = 7% – 4% = 3%
Country risk premium = (14% – 4%) – 3% = 7%
whereas I think that if comparable govt bonds are there then the difference b/w them should be the CRP. Can someone explain ?

gjcxc

BB-rated credit yield spread = 7% – 4% = 3%
This means there is 3% more risk on U.S. corporate bonds than risk-free.
Country risk premium = (14% – 4%) – 3% = 7%
So, it seems they are suggesting that country risk for the foreign country is the difference between the two risk-free rates, minus the additonal risk that U.S. corporate bonds have over the risk-free rate. I don’t think U.S. corporate bonds should have anything to do with this.

Kapie

10%. (I think I did this question before.)