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| Jeffery Marian, an analyst with Arlington Machinery, is estimating a country risk premium to include in his estimate of the cost of equity for a project Arlington is starting in India. Marian has compiled the following information for his analysis: Indian 10-year government bond yield = 7.20% 10-year U.S. Treasury bond yield = 4.60% Annualized standard deviation of the Bombay Sensex stock index = 40%. Annualized standard deviation of Indian dollar denominated 10-year government bond = 24% Annualized standard deviation of the S&P 500 Index = 18%. The estimated country risk premium for India based on Marian’s research is closest to: A)4.3%. B)2.6%. C)5.8%. |