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Into the Abyss: What if nothing is risk free?

Risk free Rates: Looking at the numbers

February 13, 2012

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Easy does it..

What is the risk free rate ina.US $b.British Poundsc.Japanese Yend.Swiss Francse.Euros

Aswath Damodaran 3

Climbing the ladder…

These are 10-year government bond rates in the local currencies. Estimate the risk free rates in each currency (and you can use any of the information on the next 3 pages).

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1. Government bonds in $/Euro

India, China, Korea and South Africa issue only local currency bonds

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2. The CDS Market

India NAKorea 1.10%South Africa 1.53%

Here is how you read this. To insure yourself against default risk in Abu Dhabi, you will have to pay 1.02% a year.

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3. Sovereign Default Spread Lookup Table

RatingDefault spread in basis points

Aaa 0Aa1 30Aa2 60Aa3 75A1 90A2 105A3 120

Baa1 160Baa2 180Baa3 200Ba1 250Ba2 300Ba3 350B1 450B2 550B3 650

Caa1 750Caa2 900Caa3 1000