Question

Dear Prof.Damodaran.
I am trying to calculate the current equity risk premium for the Greek stock market.In your spreadsheet for year 2009 you have the Greek rating A2 and the default spread is 105 bps. However, from March 2011 the rating for Greece is B1 and the default spread between the 10 yr Greek bond and the corresponding German bond is 943bps. I assume that the difference is due to the fact that the data have not been updated (that's why I asked a previous question about bondsonline.com) and I should use the current default spread of 9.43%. Thanks in advance.

Answer 1

Go with the current spread, if you are doing the analysis now. But you may want to reduce the spread as you go forward in your forecasts.

Answer 2

Thanks for the reply. I would definitely do that anyway if I had to use the discount rate for valuing a company.