How is the country equity risk premium calculated per Damodaran?

Country ERP = country default spread x (equity market volatility / bond market volatility). If a country's CDS spread is 200 bps and equity-to-bond volatility ratio is 1.5, country ERP = 200 bps x 1.5 = 3%. Total ERP = US base ERP (4.5–5%) plus country ERP of 3% = 7.5–8%.

How often should country risk premiums be updated?

Country risk premiums should be updated at least annually for valuation models. During financial crises or political events (defaults, coups, sanctions), immediate updates are needed. CDS spreads provide real-time market-implied default risk for more frequent monitoring.

Emerging Market Risk Premium Spread

Estimate country equity risk premium for emerging markets by adding the country default spread (from sovereign CDS or bond spread) to the base equity risk premium, adjusted for relative market volatility.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How It Works

Each component has a specific meaning:

Sovereign CDS or bond spread) — The sovereign cds or bond spread) recorded for the scenario being assessed.

Note: Interpret the em risk premium result against the thresholds and context described above.

How to Use

Enter the sovereign CDS or bond spread) for the scenario you are assessing. Estimate country equity risk premium for emerging markets by adding the country default spread (from sovereign CDS or bond spread) to the base equity risk premium, adjusted for relative market volatility. Use the em risk premium result to inform your calculation.

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