Country Risk Premium Essay Example | Topics and Well Written Essays - 3000 words

Country Risk Premium - Essay Example The risk models that are often utilized for corporate financial valuation, it is essential to undertake the ultimate estimation with regards to the risk and return premiums for the average investments termed as equity or market risk premium. It is hence vital for validating the Capital AssetsPricing Model, since it is currently considered as the most utilized both in the practical and theoretical analysis.The research shows that; investors often have to make some cognitive strategies on the verge of investing in emerging countries. This is due to the fact that undertaking huge investments in emerging countries such as Latin America countries, Asia and South East Europe, among others is considered as being riskier than doing so in developed markets such as that of Japan, Western Europe, and the USA. Certainly, the investments returns are also a little bit lower in the developed markets as compared to that of the emerging markets. The estimates of the much-needed return rates based on the developed markets scenario is mostly done with the Capital Assets Pricing Model. The practical weaknesses of this perspective are greatly recognized although there is a wide acceptance of its theoretical fundamentals. In the case of the emerging markets, it is often deemed as being more challenging to assess the return rates. The country risk should usually be rewarded with the country risk premium based on the required return rate with regards to an equivalent rate of investment in the developed countries.