Question

The sovereign rating for Vietnam is B2 (with a default spread of 5%), the standard deviation in the Vietnamese equity index is 30% and the standard deviation in the Vietnamese government bond is 24%. If the premium for a mature market (say, the US) is 5.5%, estimate the total equity risk premium for Vietnam.

Answer 1

The total equity risk premium for Vietnam was 11.13 as of January 1st, 2023 according to Damodaran Online. The total equity risk premium starts with a mature market premium and adds a country risk premium based on the risk of the country in question. The country risk premium for Vietnam is estimated to be 5%.

Given that the premium for a mature market (say, the US) is 5.5%, we can estimate the total equity risk premium for Vietnam as follows:

Total Equity Risk Premium = Mature Market Premium + Country Risk Premium Total Equity Risk Premium = 5.5% + 5% Total Equity Risk Premium = 10.5%

Therefore, the estimated total equity risk premium for Vietnam is 10.5%.

I hope this helps!

Step-by-step explanation:

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