ICAPM

What would be the correct formula if question adds this : “In the long run,” The international capital asset pricing model (ICAPM) expresses expected returns as: A) E® = RF + (b ~ MRP) + (ƒÁ1 ~ FCRP1) + (ƒÁ2 ~ FCRP2) + c + (ƒÁk ~ FCRPk). B) E® = (b ~ MRP) + (ƒÁ1 ~ FCRP1) + (ƒÁ2 ~ FCRP2) + c + (ƒÁk ~ FCRPk). C) E® = RF + (ƒÁ1 ~ FCRP1) + (ƒÁ2 ~ FCRP2) + c + (ƒÁk ~ FCRPk). D) E® = RF + (b ~ MRP). the copy paste screwed up the signs.

D?

D

Take ~ => “x” and ƒÁ1 => Y1, Y2…

So this means that the FCRP will tend to 0, the long run.

Correct, In th long run - All that matters is the MRP So, E® = RFR + beta*MRP + […0…]

So, in the LT, ICAPM is just extended CAPM? in short, they are different by the amount of foreign currency risk premium, right?

In the long run ICAPM is like extended CAPM with some relaxed assumptions