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Abbott Laboratories (ABT) | Capital Asset Pricing Model (CAPM)

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like 's common stock.

Rates of Return

Abbott Laboratories, monthly rates of return

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    Abbott Laboratories (ABT) NYSE Composite Index (NYC)
t Date PriceABT,t1 DividendABT,t1 RABT,t2 PriceNYC,t RNYC,t3
  Jan 31, 2008 56.18     9,126.16  
1. Feb 29, 2008 53.55   -4.68% 8,962.46 -1.79%
2. Mar 31, 2008 55.15   2.99% 8,797.29 -1.84%
3. Apr 30, 2008 52.75 0.36 -3.70% 9,299.60 5.71%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2012 65.00   -0.76% 8,260.43 0.47%
59. Dec 31, 2012 65.50   0.77% 8,443.51 2.22%
Average: 0.65%   0.05%
Standard Deviation: 4.93%   6.05%
    Abbott Laboratories (ABT) NYSE Composite Index (NYC)
t Date PriceABT,t1 DividendABT,t1 RABT,t2 PriceNYC,t RNYC,t3
  Jan 31, 2008 56.18     9,126.16  
1. Feb 29, 2008 53.55   -4.68% 8,962.46 -1.79%
2. Mar 31, 2008 55.15   2.99% 8,797.29 -1.84%
3. Apr 30, 2008 52.75 0.36 -3.70% 9,299.60 5.71%
4. May 31, 2008 56.35   6.82% 9,401.08 1.09%
5. Jun 30, 2008 52.97   -6.00% 8,660.48 -7.88%
6. Jul 31, 2008 56.34 0.36 7.04% 8,438.64 -2.56%
7. Aug 31, 2008 57.43   1.93% 8,382.08 -0.67%
8. Sep 30, 2008 57.58   0.26% 7,532.80 -10.13%
9. Oct 31, 2008 55.15 0.36 -3.59% 6,061.09 -19.54%
10. Nov 30, 2008 52.39   -5.00% 5,599.30 -7.62%
11. Dec 31, 2008 53.37   1.87% 5,757.05 2.82%
12. Jan 31, 2009 55.44 0.36 4.55% 5,195.79 -9.75%
13. Feb 28, 2009 47.34   -14.61% 4,617.03 -11.14%
14. Mar 31, 2009 47.70   0.76% 4,978.98 7.84%
15. Apr 30, 2009 41.85 0.40 -11.43% 5,513.36 10.73%
16. May 31, 2009 45.06   7.67% 6,004.07 8.90%
17. Jun 30, 2009 47.04   4.39% 5,905.15 -1.65%
18. Jul 31, 2009 44.99 0.40 -3.51% 6,424.28 8.79%
19. Aug 31, 2009 45.23   0.53% 6,643.24 3.41%
20. Sep 30, 2009 49.47   9.37% 6,910.88 4.03%
21. Oct 31, 2009 50.57 0.40 3.03% 6,739.45 -2.48%
22. Nov 30, 2009 54.49   7.75% 7,092.36 5.24%
23. Dec 31, 2009 53.99   -0.92% 7,184.96 1.31%
24. Jan 31, 2010 52.94 0.40 -1.20% 6,883.78 -4.19%
25. Feb 28, 2010 54.28   2.53% 7,035.04 2.20%
26. Mar 31, 2010 52.68   -2.95% 7,447.80 5.87%
27. Apr 30, 2010 51.16 0.44 -2.05% 7,474.40 0.36%
28. May 31, 2010 47.56   -7.04% 6,791.57 -9.14%
29. Jun 30, 2010 46.78   -1.64% 6,469.65 -4.74%
30. Jul 31, 2010 49.08 0.44 5.86% 6,998.99 8.18%
31. Aug 31, 2010 49.34   0.53% 6,704.15 -4.21%
32. Sep 30, 2010 52.24   5.88% 7,281.07 8.61%
33. Oct 31, 2010 51.32 0.44 -0.92% 7,513.35 3.19%
34. Nov 30, 2010 46.51   -9.37% 7,430.94 -1.10%
35. Dec 31, 2010 47.91   3.01% 7,964.02 7.17%
36. Jan 31, 2011 45.16 0.44 -4.82% 8,139.16 2.20%
37. Feb 28, 2011 48.10   6.51% 8,438.55 3.68%
38. Mar 31, 2011 49.05   1.98% 8,404.98 -0.40%
39. Apr 30, 2011 52.04 0.48 7.07% 8,671.41 3.17%
40. May 31, 2011 52.25   0.40% 8,477.28 -2.24%
41. Jun 30, 2011 52.62   0.71% 8,319.10 -1.87%
42. Jul 31, 2011 51.32 0.48 -1.56% 8,079.44 -2.88%
43. Aug 31, 2011 52.51   2.32% 7,528.39 -6.82%
44. Sep 30, 2011 51.14   -2.61% 6,791.65 -9.79%
45. Oct 31, 2011 53.87 0.48 6.28% 7,563.38 11.36%
46. Nov 30, 2011 54.55   1.26% 7,484.50 -1.04%
47. Dec 31, 2011 56.23   3.08% 7,477.03 -0.10%
48. Jan 31, 2012 54.15 0.48 -2.85% 7,838.48 4.83%
49. Feb 29, 2012 56.61   4.54% 8,113.24 3.51%
50. Mar 31, 2012 61.29   8.27% 8,206.93 1.15%
51. Apr 30, 2012 62.06 0.51 2.09% 8,119.06 -1.07%
52. May 31, 2012 61.79   -0.44% 7,463.96 -8.07%
53. Jun 30, 2012 64.47   4.34% 7,801.84 4.53%
54. Jul 31, 2012 66.31 0.51 3.65% 7,863.93 0.80%
55. Aug 31, 2012 65.54   -1.16% 8,014.93 1.92%
56. Sep 30, 2012 68.56   4.61% 8,251.00 2.95%
57. Oct 31, 2012 65.50 0.51 -3.72% 8,221.40 -0.36%
58. Nov 30, 2012 65.00   -0.76% 8,260.43 0.47%
59. Dec 31, 2012 65.50   0.77% 8,443.51 2.22%
Average: 0.65%   0.05%
Standard Deviation: 4.93%   6.05%

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1 Data in USD $ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of ABT during period t

3 Rate of return on NYC (the market portfolio proxy) during period t

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Systematic Risk (β) Estimation

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VarianceABT 24.27
VarianceNYC 36.59
CovarianceABT,NYC 10.09
Correlation CoefficientABT,NYC1 0.34
βABT2 0.28
αABT3 0.63

Calculations

1 CovarianceABT,NYC ÷ (Standard DeviationABT × Standard DeviationNYC)
= 10.09 ÷ (4.93 × 6.05)

2 CovarianceABT,NYC ÷ VarianceNYC
= 10.09 ÷ 36.59

3 AverageABT – βABT × AverageNYC
= 0.65 – 0.28 × 0.05

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Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.98%
Expected rate of return on market portfolio2 E(RM) 13.16%
Systematic risk (β) of 's common stock βABT 0.28
 
Expected rate of return on 's common stock3 E(RABT) 5.79%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

Calculations

2 See Details »

3 E(RABT) = RF + βABT [E(RM) – RF]
= 2.98% + 0.28 [13.16% – 2.98%]
= 5.79%

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