Question

how do i find the default spread for india

Answer 1

default spread can be found using the Countries rating .... and looking for the CDS spread for a similar rated country ... since India does not have a CDS spread...

Answer 2

thanks for answering gaurav...I looked at this link by prof. damodaran: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html -can I subtract the country risk premium from the total risk premium to get the default spread (what does adjusted default spread of 240-for india, mean)

Answer 3

that is the default spread that you are looking for i.e.240bps, you can consider this as the additional risk that you take to be in india when investing in a 10Y govt bond.... Now country risk premium would normally be higher since this is for equity and equity is more risker than bonds.... for India and emerging markets this can be taken ~ 1.5 times Default spread = 1.5* 240 = 360 bps.. now total risk = Pure Rf rate + Mature Market Risk Premium *Beta + Country risk Premium*Lambda. Pure Rf Rate is nothing but 10 Year Govt Bond Yield - Default Spread for India = 800pbs - 240 bps = 560bps or 5.60% . Total Risk if Beta =1 and Lambda =1 would be 5.6%+4.90% (Risk Premium for US in March) *1+ 2.40%*1 = 12.90%

Answer 4

sorry ...Total Risk if Beta =1 and Lambda =1 would be 5.6%+4.90% (Risk Premium for US in March) *1+ 3.60%*1 = 14.1
0%

Answer 5

got it. I was stuck finding out the default spread as I couldn't find it anywhere.. you've made it very clear, thanks a lot