 While computing beta for a project or another company, it is very much important to consider the country risk because the riskiness of political factor in any country can play a significant role in the success or failure of the project or a company. Empirical finance literature shows that the use of stock beta to capture the country risk of a project or a company works very well in developed countries, but it is not supported for working well in underdeveloped and developing countries. Here this model fails to capture the country risk for the developing countries. The solution for developing countries to capture the country's risk through beta is that when we are estimating the RE or return on equity or the equity cost through the CAPA model, we need to add the countries spread into the market risk premium. This way we have total risk premium which is the sum of two terms. The first term is the country's spread or the country's equity premium CEP and the second term is the market risk premium. Now we have sum of two terms that is the sum of market risk premium and the country spread. When we multiply this sum with the project's market risk, this assume, this multiplication assumes variation in the country risk premium according to the market riskiness in that particular country. We have another alternative model where the cost of equity is the sum of three other factors including the risk pre-interest rate, the product of beta and developed market risk premium and the third factor is the country's risk premium and this alternative model assume that country risk premium or CRP is same as of the project's market risk. Now how to compute the country's equity premium or CEP? We have three different approaches for this computation. The first is the sovereign yield spread or the SYS, this is the simplest estimate of any country's spread to compute SYS, how this SYS is computed. In fact, this is the difference between the government bond yield in that country, denominated in the currency of a developed country and the treasury bond yield on a similar maturity bond in the developed country. If we apply this example to our country that is Pakistan, then we say let's say that Pakistan is a home country where the project or company is located and with reference to R, the developed country is say US. So we have two countries, the first is the developing countries that is Pakistan, the second is the developed countries that is the US. Now how these two countries can help us to determine the sovereign yield spread? We need to have a government bond yield in Pakistan and these government bonds are to be denominated in US currency. So we need to have US currency bonds printed by the government of Pakistan and we need to have the yields on such bonds. Next we need to have a treasury bond yields from Pakistan with the similar treasury bonds available in US. So in this way the spread between these two terms will be called as the sovereign yield spread. This sovereign yield spread is in fact a little difficult to estimate. The second approach is the country equity premium or the CEP. To determine CEP we adjust the sovereign yield spread with the volatility of the stock market relative to the bond market. So we can say that we can determine the country equity premium as a relationship between the stock market and the bond market multiplied with the sovereign yield spread. Then we add this CEP to the equity premium which we estimated for a project in the developed country in order to determine the total equity risk premium. Let's take an example which says that if the equity risk premium for a project in a developed country is 4.5% and the country risk premium is 3% then the total equity risk premium used in the CEPM estimation is the sum of these two terms that is 7.5%. If we have an appropriate beta of 1.2 and the risk pre rate of 4% then we can determine cost of equity or RE using the CEPM model which comes to 13%. The third approach to determine a country risk is the country's credit rating or CCR. These CCR estimates are the expected rates of return for the countries that have credit ratings but they don't have equity markets. Now how to determine equity risk premium for under this approach? In fact we determine a reward to credit risk ratio for larger sample of countries that have both the equity markets and the credit ratings. Then we use this credit risk ratio for the developing countries where there exist no equity market. We have an example to determine the country equity premium which says that Avinov is estimating countries equity premium to estimate RE for his investment firm in Argentina. His research in Argentina showed 9.5% yield on the Argentinian government and 4.5% on similar maturity US prairie bonds. The annualized standard deviation of the Argentinian Marvel stock index listed on the Benus-Iris stock exchange during the most recent year is 40%. The annualized standard deviation of the Argentinian dollar denominated 10 year government bond over the recent period is 28%. So the question is what is the estimated country equity premium for the Argentina are based on the Avinov-Avinar research? When we put these values into the model the country equity risk premium comes to 7.14%.