LOS d, (Part 2): Calculate and interpret a country risk premium.
Q1. Country-risk premiums tend to:
A) decrease toward zero over the long run as emerging markets become integrated into the global market.
B) become part of the local government risk-free rate.
C) increase when government credit issues grow.
Q2. Country risk for an emerging market company is generally incorporated into the:
A) credit risk premium.
B) market-risk premium.
C) sovereign risk premium.
LOS d, (Part 2): Calculate and interpret a country risk premium. fficeffice" />
Q1. Country-risk premiums tend to:
A) decrease toward zero over the long run as emerging markets become integrated into the global market.
B) become part of the local government risk-free rate.
C) increase when government credit issues grow.
Correct answer is A)
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.
Q2. Country risk for an emerging market company is generally incorporated into the:
A) credit risk premium.
B) market-risk premium.
C) sovereign risk premium.
Correct answer is C)
The sovereign risk premium consists of both credit and country-risk premiums.
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