Calculator · Cost of capital

Country default spreads and risk premiums

Sovereign default spreads and country risk premiums by country, weighted by where the business operates: the default spread for the cost of debt and the country risk premium for the cost of equity.

How country risk is measured

Following Damodaran, the country risk premium starts from the default spread of the sovereign: the typical spread for its Moody's rating, the sovereign CDS spread net of the US CDS spread, or a figure you document; for unrated countries Damodaran derives the spread from the PRS country risk score. Because equities are riskier than government bonds, the default spread is scaled up by the relative volatility of equities to bonds, Damodaran's multiplier for each data update or your own estimate, to give the country risk premium added to the mature-market equity risk premium.

Countries are weighted by where the business earns its revenue, not where it is incorporated. The weighted default spread feeds the cost of debt and the weighted premium the cost of equity; an optional lambda measures the company's exposure relative to the average company in the country. Checks flag weights that do not total 100%, a valuation date before the data update (IVS 102 para 10.04), a CDS spread far from the rating-based spread, and country risk counted twice, in both the cash flows and the discount rate (IVS 103 para A20.38). The full country table can be searched, compared across data updates and downloaded, and the project panel carries the results into the cost of equity, cost of debt and WACC calculators.

Related: Risk-free rate calculator · Cost of equity calculator · Cost of debt calculator · Model notes

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