Building Block Approach (Country Risk Premium)
The building block approach estimates the equity risk premium for a particular country by adding a country risk premium to a benchmark premium, typically the US equity risk premium.
What is Building Block Approach (Country Risk Premium)?
Country risk covers sovereign risk (the chance the government defaults on its debt) and transfer and convertibility risk (the chance it imposes capital or exchange controls), as well as events such as war, expropriation or natural disaster. Regulators in emerging markets often use this approach when setting WACC.