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Determination of the risk premium for the environment of the Czech Republic based on a comparison of the established rating from rating agencies and the model from Damodaran

Author

Listed:
  • Michaela Procházková
  • Mario Bodanovic
  • Iva Klementová

Abstract

This paper describes the general methods of the risk premium calculation and compares them with Damodaran approaches and the rating assigned by specialized agencies. The determination of the risk premium represents the amount of money that an investor obtains when taking the risk of an investment in a particular market. The simplest option for obtaining a risk premium appears to be the risk premium assigned by the credit rating agencies. However, there is currently a plethora of such agencies in the market and the investor must ensure that they will take the right decision. In the analysis of different methodologies in the methodological part of the paper, the most appropriate model for determining the risk premium for the Czech environment is identified. In the discussion of the results, the weaknesses of each method are described in more detail to identify the recommended method for the Czech Republic. In the conclusion of this conference paper, a modification of the risk premium calculation is proposed to obtain more accurate results.

Suggested Citation

  • Michaela Procházková & Mario Bodanovic & Iva Klementová, 2022. "Determination of the risk premium for the environment of the Czech Republic based on a comparison of the established rating from rating agencies and the model from Damodaran," Littera Scripta, VSTE, vol. 15(1), April.
    • Handle: RePEc:rsg:littra:2022-007
    DOI: 10.36708/LS.2022.I01.007
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