Country risk premium development — Case study Croatia

The difference between the risk free euro yield curve and the model-based, derived euro yield curve for Croatia, based on the euro bonds of the Ministry of Finance in the time dimension is the credit risk premium for Croatia. Country risk existence is a necessary category in assets valuation, capital budgeting, capital cost calculation, investment opportunities measures, developing of internal economy in financial intermediation and other economic relations with time value of money present. After explaining the concept of the yield curve and its importance in financial system, risk free rate and country risk, in the paper Croatian euro yield curves are modeled and corresponding country spread is calculated and analyzed.