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E.I. DuPont de Nemours & Co. (DD) | 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

E.I. DuPont de Nemours & Co., monthly rates of return

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    E.I. DuPont de Nemours & Co. (DD) NYSE Composite Index (NYC)
t Date PriceDD,t1 DividendDD,t1 RDD,t2 PriceNYC,t RNYC,t3
  Jan 31, 2008 45.18     9,126.16  
1. Feb 29, 2008 46.42 0.41 3.65% 8,962.46 -1.79%
2. Mar 31, 2008 46.76   0.73% 8,797.29 -1.84%
3. Apr 30, 2008 48.91   4.60% 9,299.60 5.71%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2012 43.14 0.43 -2.13% 8,260.43 0.47%
59. Dec 31, 2012 44.98   4.27% 8,443.51 2.22%
Average: 0.79%   0.05%
Standard Deviation: 9.39%   6.05%
    E.I. DuPont de Nemours & Co. (DD) NYSE Composite Index (NYC)
t Date PriceDD,t1 DividendDD,t1 RDD,t2 PriceNYC,t RNYC,t3
  Jan 31, 2008 45.18     9,126.16  
1. Feb 29, 2008 46.42 0.41 3.65% 8,962.46 -1.79%
2. Mar 31, 2008 46.76   0.73% 8,797.29 -1.84%
3. Apr 30, 2008 48.91   4.60% 9,299.60 5.71%
4. May 31, 2008 47.91 0.41 -1.21% 9,401.08 1.09%
5. Jun 30, 2008 42.89   -10.48% 8,660.48 -7.88%
6. Jul 31, 2008 43.81   2.15% 8,438.64 -2.56%
7. Aug 31, 2008 44.44 0.41 2.37% 8,382.08 -0.67%
8. Sep 30, 2008 40.30   -9.32% 7,532.80 -10.13%
9. Oct 31, 2008 32.04   -20.50% 6,061.09 -19.54%
10. Nov 30, 2008 25.06 0.41 -20.51% 5,599.30 -7.62%
11. Dec 31, 2008 25.30   0.96% 5,757.05 2.82%
12. Jan 31, 2009 22.96   -9.25% 5,195.79 -9.75%
13. Feb 28, 2009 18.76 0.41 -16.51% 4,617.03 -11.14%
14. Mar 31, 2009 22.33   19.03% 4,978.98 7.84%
15. Apr 30, 2009 27.90   24.94% 5,513.36 10.73%
16. May 31, 2009 28.47 0.41 3.51% 6,004.07 8.90%
17. Jun 30, 2009 25.62   -10.01% 5,905.15 -1.65%
18. Jul 31, 2009 30.93   20.73% 6,424.28 8.79%
19. Aug 31, 2009 31.93 0.41 4.56% 6,643.24 3.41%
20. Sep 30, 2009 32.14   0.66% 6,910.88 4.03%
21. Oct 31, 2009 31.82   -1.00% 6,739.45 -2.48%
22. Nov 30, 2009 34.58 0.41 9.96% 7,092.36 5.24%
23. Dec 31, 2009 33.67   -2.63% 7,184.96 1.31%
24. Jan 31, 2010 32.61   -3.15% 6,883.78 -4.19%
25. Feb 28, 2010 33.72 0.41 4.66% 7,035.04 2.20%
26. Mar 31, 2010 37.24   10.44% 7,447.80 5.87%
27. Apr 30, 2010 39.84   6.98% 7,474.40 0.36%
28. May 31, 2010 36.17 0.41 -8.18% 6,791.57 -9.14%
29. Jun 30, 2010 34.59   -4.37% 6,469.65 -4.74%
30. Jul 31, 2010 40.67   17.58% 6,998.99 8.18%
31. Aug 31, 2010 40.77 0.41 1.25% 6,704.15 -4.21%
32. Sep 30, 2010 44.62   9.44% 7,281.07 8.61%
33. Oct 31, 2010 47.28   5.96% 7,513.35 3.19%
34. Nov 30, 2010 46.99 0.41 0.25% 7,430.94 -1.10%
35. Dec 31, 2010 49.88   6.15% 7,964.02 7.17%
36. Jan 31, 2011 50.68   1.60% 8,139.16 2.20%
37. Feb 28, 2011 54.87 0.41 9.08% 8,438.55 3.68%
38. Mar 31, 2011 54.97   0.18% 8,404.98 -0.40%
39. Apr 30, 2011 56.79   3.31% 8,671.41 3.17%
40. May 31, 2011 53.30 0.41 -5.42% 8,477.28 -2.24%
41. Jun 30, 2011 54.05   1.41% 8,319.10 -1.87%
42. Jul 31, 2011 51.42   -4.87% 8,079.44 -2.88%
43. Aug 31, 2011 48.27 0.41 -5.33% 7,528.39 -6.82%
44. Sep 30, 2011 39.97   -17.19% 6,791.65 -9.79%
45. Oct 31, 2011 48.07   20.27% 7,563.38 11.36%
46. Nov 30, 2011 47.72 0.41 0.12% 7,484.50 -1.04%
47. Dec 31, 2011 45.78   -4.07% 7,477.03 -0.10%
48. Jan 31, 2012 50.89   11.16% 7,838.48 4.83%
49. Feb 29, 2012 50.85 0.41 0.73% 8,113.24 3.51%
50. Mar 31, 2012 52.90   4.03% 8,206.93 1.15%
51. Apr 30, 2012 53.46   1.06% 8,119.06 -1.07%
52. May 31, 2012 48.26 0.43 -8.92% 7,463.96 -8.07%
53. Jun 30, 2012 50.57   4.79% 7,801.84 4.53%
54. Jul 31, 2012 49.70   -1.72% 7,863.93 0.80%
55. Aug 31, 2012 49.75 0.43 0.97% 8,014.93 1.92%
56. Sep 30, 2012 50.27   1.05% 8,251.00 2.95%
57. Oct 31, 2012 44.52   -11.44% 8,221.40 -0.36%
58. Nov 30, 2012 43.14 0.43 -2.13% 8,260.43 0.47%
59. Dec 31, 2012 44.98   4.27% 8,443.51 2.22%
Average: 0.79%   0.05%
Standard Deviation: 9.39%   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 DD 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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VarianceDD 88.20
VarianceNYC 36.59
CovarianceDD,NYC 49.57
Correlation CoefficientDD,NYC1 0.87
βDD2 1.35
αDD3 0.71

Calculations

1 CovarianceDD,NYC ÷ (Standard DeviationDD × Standard DeviationNYC)
= 49.57 ÷ (9.39 × 6.05)

2 CovarianceDD,NYC ÷ VarianceNYC
= 49.57 ÷ 36.59

3 AverageDD – βDD × AverageNYC
= 0.79 – 1.35 × 0.05

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Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.77%
Expected rate of return on market portfolio2 E(RM) 13.09%
Systematic risk (β) of 's common stock βDD 1.35
 
Expected rate of return on 's common stock3 E(RDD) 16.75%

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(RDD) = RF + βDD [E(RM) – RF]
= 2.77% + 1.35 [13.09% – 2.77%]
= 16.75%

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