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Estimate the risk-free rate in koruna

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Question 1. František, a.s. is a company based in the Czech Republic and operating mainly in the Czech Republic and Russia. The table below lists the Government bond rate for local currency bonds in each of those countries, the sovereign ratings, the CDS spreads of each of those countries, and the revenues František expects to generate in each market.

Country

Revenue in Billions of Koruna

Local Currency

Gov't Bond Rate in Local Currency

Sovereign Rating

Sovereign CDS Spread

Russia

30

Rubles

12%

Ba1

2.5%

Czech Rep.

70

Koruna

1.5%

A1

0.5%

a. Estimate the risk-free rate in Koruna

b. Estimate the market risk premium for the company. Assume that in these countries equity is 1.5 times riskier than the government bond. Mature markets have a market risk premium of 6%. (2 points)

 

 

Reference no: EM132448651

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