Country Risk Premium

[avik2312]

I understand the logic of the having the country risk premium added to the CAPM for calculation of the cost of equity capital.
However, can anyone redirect me or explain how the formula is derived. Looking forward to a response and thanks in advance.
Regards.

 

[India_28]

country risk premium is added to market risk premium to reflect the risk associated with investing in a developing country.
Equation is RFR+ Beta[E(Rm)-RFR+CRP]
CRP= sovereign yield spread*(SD of developing country’s equity index/SD of developed country’s bond market)
SYS= Diff. b/w yield of govt. bonds in developing country and treasury bonds of similar maturities.