Hi,
I’m confused by the calculation of ConsuCo’s cost of debt. I understand that in principle, emerging market cost of debt is equal to
US Govt. Bond Yield adjusted for inflation difference between the US and Emerging Market Country + a systematic credit spread depending on the rating.
In exhibit 12, they have the inflation adjusted risk free rate (which I understand) but I don’t understand why they have two corporate credit spreads (BBB and B+). It seems the BBB credit spread came out of nowhere. Could someone clarify what is going on here.
Thanks.