Reading 40: Valuation in Emerging Markets- LOS d(part2)～ government, interpret, emerging, decrease, country

wzaina

 

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.

wzaina

 

 

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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