Risk free rate for currencies pegged to USD

Water Cooler Investing
#1

Dear All,

I am trying to valua a private company based in the UAE.

I a trying to find a government bond yield for 5-10 years but no success yet.

I suppose the other way is to take a 10 year US bond yield and add the inflation differential. Again to find the inflation differential I am not clear where to look.

Can’t I take the country spread of UAE which is 50bps and add that to US bond yield since the currency is essentially pegged?

Please advice, this is really urgent.

Thanks!

#2

I’d also add an ISIS premium to it. Not sure how I would go about estimating it though

May be add the industry risk premium to it? The company cannot possibly be as risky as UAE, it should be more risky. If you can find industry specific risk premiums (corporate debt for similar companies?)

#3

5%

#4

If the currency is pegged, then they should have the same risk free rates adjusted for inflation. You do not add an inflation differential to the US T-bonds, unless you mean adding the nominal inflation rate of UAE to the real interest rate on a 10-year T-bond, which would be the correct derivation.

You do not add a country spread to the US T-bond, because you are trying to calculate the risk free rate in AED terms.