13 thoughts on “Session 4: Low cost Charges – Child Steps

  1. Dear sir, I took an example with Vietnam Dong:
    Government 10 year bond rate is about 2.5%
    Vietnam is rated Ba3 => Default Spread = 4.22%
    Risk free rate (VND) = Government bond – Default Spread = 2.5 – 4.22 = -1,72%
    So in this case the Risk free rate in Vietnam is negative. Is something wrong sir? And Indian is rated higher Vietnam but why Indian Bond rate is higher than Vietnam Bond, I thought Indian is safer so the Bond rate should be lower, right?

  2. Thank you for a great lesson. Finally have an understanding of the logic behind interest rates. Can proxy with real growth + inflation.

  3. How the counterparty risk and us cds are related in any sense? Any insurance company not paying the money back and estimating this risk using us government cds default spread is not understandable to me. Can anyone please explain the reason behind this.

  4. Hi Sir,
    in the first method to find default spread we are subtracting the US bond rate , but why we are not taking default rate of US bond in our calculations? if we subtract default risk of emerging govt from its bond rate the result will still have the US default rate right? shouldn't we subtract it as well from final result. in this case we are considering US bond rate as risk free but it has its own default rate as well.

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