Abstract:

The Capital Asset Pricing Model is perhaps the most significant model for the assessment of a company’s return as well as the assessment of the market return in the ownership of one investor, depending on the return on the market portfolio. The CAPM model represents a very significant analytical means in investment decision-making when potential foreign investors are making a decision on investing in securities, simultaneously primarily thinking of stocks. Within the framework of the paper, a modification of the CAPM model has been made in that the model has been expanded with a country risk premium for the reason of the fact that SE European countries are characterized by a larger number of risks in comparison with highly-developed countries. Because of that, when they are making a decision on investing in these countries, potential investors request that, apart from the market premium of the risk, their return should also include the country risk premium, which together make the risk premium of capital. The paper presents the calculation of the risk of investment in SE European countries with the help of this model