CFA Practice Question

There are 233 practice questions for this study session.

CFA Practice Question

To calculate the country equity premium, the following inputs are needed:

I. Sovereign yield spread
II. Annualized σ of equity index
III. Annualized σ of the sovereign bond market in terms of the local currency
IV. Annualized σ of the sovereign bond market in terms of the developed market currency
V. Annualized σ of the equity index in terms of the developed market currency
Correct Answer: I, II and IV

The logic is that the sovereign yield spread captures the general risk of the country, which is then adjusted for the volatility of the stock market relative to the bond market.

User Contributed Comments 4

User Comment
omf24 Why is it II and not V?
prajacti because you plan to invest in the country using it's local currency.
syazwan21 ^ didn't think of it that way. Thanks prajacti!
jagp and why don't you compare apples with apples (equity index of the contry with bond market of the country - developing country's currency)
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