ICAPM (International CAPM)

E(R) = R_f,DC + β_WM * WMRP + γ_DC * FCRP

R_f,DC: domestic risk-free rate
β_WM: asset's world market beta
WMRP: world market risk premium
γ_DC: sensitivity of the asset's domestic currency return to a change in the local (foreign) currency
FCRP: foreign currency risk premium

All returns are measured in DC (domestic currency).

ICAPM (International CAPM)

items			value
Rf,DC			2.00%
Rf,FC			8.00%
World market risk premium			6.00%
Foreign country index beta to world market index			1.40
Foreign country's local market risk premium			7.50%
Foreign company's beta to local index			1.30
Foreign currency risk premium			3.00%
Foreign country's sensitivity of LC stock returns to LC			0.70

γ_LC = γ_FC = 0.70

We need to convert this to the sensitivity of the asset's domestic currency returns to the local currency. Using the formula for the sensitivity of the asset's domestic currency return to a change in the local currency.

γ = γ_DC = γ_FC + 1= 0.70 + 1 = 1.70

The ICAPM expected return for the foreign company is:

E(R)
= R_f,DC + β_WM * WMRP + γ_DC * FCRP
= 2.00% + 1.40 * 6.00% + 1.70 * 3.00%
= 15.500%