If it’s guaranteed, then it would be at the US T.Bond rate right? Inverse of that rate. So say that the rate is 3%, you would pay like $ 33 .
Here, the market expects a premium, say the rate is 10%, obviously higher than the bond rate, because risk is involved. Which means, you will pay $10 for this bond.
<aside> 💡 To get this risk premium, we often use past data, or create think tanks to understand what the market wants. However, A.D. argues that it would be better to look at what the market already pays. This means that the price tells you the risk premium.
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Let’s tread further on this predicament.
As you get older, you get more risk averse. It’s seen that the demographic of country is a very important factor in setting this price that we talked about above. Therefore, markets with aging investor bases, you will see higher risk premiums, because older people are more risk averse, and therefore charge more for the same risk.
<aside> 💡 So, if you really see, the risk premium for anything, is not an intrinsic value. That is, there is no metric within the fundamentals of an asset that can give us risk. RISK IS PRICE BASED. What are people willing to give? This is important because this changes a lot.
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1st answer, you will pay less and demand higher returns, because you are scared of the inherent risk of the crisis in the country.