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Country Default Spreads and Risk Premiums

Last updated: January 2011 This table summarizes the latest bond ratings and appropriate default spreads for different countries. While you can use these numbers as rough estimates of country risk premiums, you may want to modify the premia to reflect the additonal risk of equity markets. To estimate the long term country risk premium, I start with the country rating (from Moody's: www.moodys.com) and estimate the default spread for that rating (based upon traded country bonds) over a default free government bond rate. This becomes a measure of the added country risk premium for that country. I add this default spread to the historical risk premium for a mature equity market (estimated from US historical data) to estimate the total risk premium. In the short term especially, the equity country risk premium is likely to be greater than the country's default spread. You can estimate an adjusted country risk premium by multiplying the default spread by the relative equity market volatility for that market (Std dev in country equity market/Std dev in country bond). I have used the emerging market average of 1.5 (equity markets are about 1.5 times more volatile than bond markets) to estimate country risk premium.I have added this to my estimated risk premium of 5% for mature markets (obtained by looking at the implied premium for the S&P 500) to get the total risk premium. Country Albania Angola Argentina Armenia Australia Austria [1] Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belgium [1] Belize Bermuda Bolivia Bosnia and Herzegovina Botswana Brazil Bulgaria Cambodia Canada Cayman Islands Chile China Colombia Costa Rica Croatia Cuba Cyprus [1] Czech Republic Denmark Dominican Republic Ecuador Egypt El Salvador Estonia Fiji Islands Finland [1] France [1] Georgia Germany [1] Greece [1] Guatemala Honduras Hong Kong Hungary Iceland India Indonesia Ireland [1] Isle of Man Israel Italy [1] Jamaica Japan Jordan Kazakhstan Korea Kuwait Latvia Lebanon Lithuania Luxembourg [1] Region
Eastern Europe & Russia Africa Central and South America Eastern Europe & Russia Australia & New Zealand Western Europe Eastern Europe & Russia Caribbean Middle East Asia Caribbean Eastern Europe & Russia Western Europe Central and South America Caribbean Central and South America Eastern Europe & Russia Africa Central and South America Eastern Europe & Russia Asia North America Caribbean Central and South America Asia Central and South America Central and South America Eastern Europe & Russia Caribbean Western Europe Eastern Europe & Russia Western Europe Caribbean Central and South America Africa Central and South America Eastern Europe & Russia Asia Western Europe Western Europe Western Europe Western Europe Western Europe Central and South America Central and South America Asia Eastern Europe & Russia Western Europe Asia Asia Western Europe Financial Center Middle East Western Europe Caribbean Asia Middle East Eastern Europe & Russia Asia Middle East Eastern Europe & Russia Middle East Eastern Europe & Russia Financial Center

Long-Term Rating B1 B1 B3 Ba2 Aaa Aaa Ba1 A3 A3 Ba3 Baa2 B1 Aa1 B3 Aa2 B1 B2 A2 Baa3 Baa3 B2 Aaa Aa3 Aa3 Aa3 Baa3 Baa3 Baa3 Caa1 Aa3 A1 Aaa B1 Caa3 Ba1 WR A1 B1 Aaa Aaa Ba3 Aaa Ba1 Ba1 B2 Aa1 Baa3 Baa3 Ba1 Ba2 Baa1 Aaa A1 Aa2 B3 Aa2 Baa3 Baa2 A1 Aa2 Baa3 B1 Baa1 Aaa

Adj. Default Spread 400 400 600 275 0 0 240 115 115 325 175 400 25 600 50 400 500 100 200 200 500 0 70 70 70 200 200 200 700 70 85 0 400 1000 240 1000 85 400 0 0 325 0 240 240 500 25 200 200 240 275 150 0 85 50 600 50 200 175 85 50 200 400 150 0

Total Risk Premium 11.00% 11.00% 14.00% 9.13% 5.00% 5.00% 8.60% 6.73% 6.73% 9.88% 7.63% 11.00% 5.38% 14.00% 5.75% 11.00% 12.50% 6.50% 8.00% 8.00% 12.50% 5.00% 6.05% 6.05% 6.05% 8.00% 8.00% 8.00% 15.50% 6.05% 6.28% 5.00% 11.00% 20.00% 8.60% 20.00% 6.28% 11.00% 5.00% 5.00% 9.88% 5.00% 8.60% 8.60% 12.50% 5.38% 8.00% 8.00% 8.60% 9.13% 7.25% 5.00% 6.28% 5.75% 14.00% 5.75% 8.00% 7.63% 6.28% 5.75% 8.00% 11.00% 7.25% 5.00%

Country Risk Premium 6.00% 6.00% 9.00% 4.13% 0.00% 0.00% 3.60% 1.73% 1.73% 4.88% 2.63% 6.00% 0.38% 9.00% 0.75% 6.00% 7.50% 1.50% 3.00% 3.00% 7.50% 0.00% 1.05% 1.05% 1.05% 3.00% 3.00% 3.00% 10.50% 1.05% 1.28% 0.00% 6.00% 15.00% 3.60% 15.00% 1.28% 6.00% 0.00% 0.00% 4.88% 0.00% 3.60% 3.60% 7.50% 0.38% 3.00% 3.00% 3.60% 4.13% 2.25% 0.00% 1.28% 0.75% 9.00% 0.75% 3.00% 2.63% 1.28% 0.75% 3.00% 6.00% 2.25% 0.00%

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Macao Malaysia Malta [1] Mauritius Mexico Moldova Mongolia Montenegro Morocco Netherlands [1] New Zealand Nicaragua Norway Oman Pakistan Panama Papua New Guinea Paraguay Peru Philippines Poland Portugal [1] Qatar Romania Russia Saudi Arabia Singapore Slovakia Slovenia [1] South Africa Spain [1] Sri Lanka St. Vincent & the Grenadines Suriname Sweden Switzerland Taiwan Thailand Trinidad and Tobago Tunisia Turkey Ukraine United Arab Emirates United Kingdom United States of America Uruguay Venezuela Vietnam

Asia Asia Western Europe Africa Central and South America Eastern Europe & Russia Asia Eastern Europe & Russia Africa Western Europe Australia & New Zealand Central and South America Western Europe Middle East Asia Central and South America Asia Central and South America Central and South America Asia Eastern Europe & Russia Western Europe Middle East Eastern Europe & Russia Eastern Europe & Russia Middle East Asia Eastern Europe & Russia Eastern Europe & Russia Africa Western Europe Asia Caribbean Caribbean Western Europe Western Europe Asia Asia Caribbean Africa Asia Eastern Europe & Russia Middle East Western Europe North America Central and South America Central and South America Asia

Aa3 A3 A1 Baa2 Baa1 B3 B1 Ba3 Ba1 Aaa Aaa B3 Aaa A1 B3 Baa3 B1 B1 Baa3 Ba3 A2 A1 Aa2 Baa3 Baa1 Aa3 Aaa A1 Aa2 A3 Aa1 B1 B1 Ba3 Aaa Aaa Aa3 Baa1 Baa1 Baa2 Ba2 B2 Aa2 Aaa Aaa Ba1 B1 B1

70 115 85 175 150 600 400 325 240 0 0 600 0 85 600 200 400 400 200 325 100 85 50 200 150 70 0 85 50 115 25 400 400 325 0 0 70 150 150 175 275 500 50 0 0 240 400 400

6.05% 6.73% 6.28% 7.63% 7.25% 14.00% 11.00% 9.88% 8.60% 5.00% 5.00% 14.00% 5.00% 6.28% 14.00% 8.00% 11.00% 11.00% 8.00% 9.88% 6.50% 6.28% 5.75% 8.00% 7.25% 6.05% 5.00% 6.28% 5.75% 6.73% 5.38% 11.00% 11.00% 9.88% 5.00% 5.00% 6.05% 7.25% 7.25% 7.63% 9.13% 12.50% 5.75% 5.00% 5.00% 8.60% 11.00% 11.00%

1.05% 1.73% 1.28% 2.63% 2.25% 9.00% 6.00% 4.88% 3.60% 0.00% 0.00% 9.00% 0.00% 1.28% 9.00% 3.00% 6.00% 6.00% 3.00% 4.88% 1.50% 1.28% 0.75% 3.00% 2.25% 1.05% 0.00% 1.28% 0.75% 1.73% 0.38% 6.00% 6.00% 4.88% 0.00% 0.00% 1.05% 2.25% 2.25% 2.63% 4.13% 7.50% 0.75% 0.00% 0.00% 3.60% 6.00% 6.00%

Last updated: January 2011 Aswath Damodaran

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