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 Kimberly-Clark Corp. common stock.
Rates of Return
Kimberly-Clark Corp., monthly rates of return
| Kimberly-Clark Corp. (KMB) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceKMB,t1 | DividendKMB,t1 | RKMB,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2016 | $128.42 | 1,940.24 | ||||
| 1. | Feb 29, 2016 | $130.30 | 1.46% | 1,932.23 | -0.41% | |
| 2. | Mar 31, 2016 | $134.51 | $0.92 | 3.94% | 2,059.74 | 6.60% |
| 3. | Apr 30, 2016 | $125.19 | -6.93% | 2,065.30 | 0.27% | |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 58. | Nov 30, 2020 | $139.31 | 5.07% | 3,621.63 | 10.75% | |
| 59. | Dec 31, 2020 | $134.83 | $1.07 | -2.45% | 3,756.07 | 3.71% |
| Average (R): | 0.47% | 1.22% | ||||
| Standard deviation: | 4.97% | 4.36% | ||||
| Kimberly-Clark Corp. (KMB) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceKMB,t1 | DividendKMB,t1 | RKMB,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2016 | $128.42 | 1,940.24 | ||||
| 1. | Feb 29, 2016 | $130.30 | 1.46% | 1,932.23 | -0.41% | |
| 2. | Mar 31, 2016 | $134.51 | $0.92 | 3.94% | 2,059.74 | 6.60% |
| 3. | Apr 30, 2016 | $125.19 | -6.93% | 2,065.30 | 0.27% | |
| 4. | May 31, 2016 | $127.04 | 1.48% | 2,096.95 | 1.53% | |
| 5. | Jun 30, 2016 | $137.48 | $0.92 | 8.94% | 2,098.86 | 0.09% |
| 6. | Jul 31, 2016 | $129.55 | -5.77% | 2,173.60 | 3.56% | |
| 7. | Aug 31, 2016 | $128.06 | -1.15% | 2,170.95 | -0.12% | |
| 8. | Sep 30, 2016 | $126.14 | $0.92 | -0.78% | 2,168.27 | -0.12% |
| 9. | Oct 31, 2016 | $114.41 | -9.30% | 2,126.15 | -1.94% | |
| 10. | Nov 30, 2016 | $115.61 | 1.05% | 2,198.81 | 3.42% | |
| 11. | Dec 31, 2016 | $114.12 | $0.92 | -0.49% | 2,238.83 | 1.82% |
| 12. | Jan 31, 2017 | $121.13 | 6.14% | 2,278.87 | 1.79% | |
| 13. | Feb 28, 2017 | $132.55 | 9.43% | 2,363.64 | 3.72% | |
| 14. | Mar 31, 2017 | $131.63 | $0.97 | 0.04% | 2,362.72 | -0.04% |
| 15. | Apr 30, 2017 | $129.75 | -1.43% | 2,384.20 | 0.91% | |
| 16. | May 31, 2017 | $129.73 | -0.02% | 2,411.80 | 1.16% | |
| 17. | Jun 30, 2017 | $129.11 | $0.97 | 0.27% | 2,423.41 | 0.48% |
| 18. | Jul 31, 2017 | $123.16 | -4.61% | 2,470.30 | 1.93% | |
| 19. | Aug 31, 2017 | $123.29 | 0.11% | 2,471.65 | 0.05% | |
| 20. | Sep 30, 2017 | $117.68 | $0.97 | -3.76% | 2,519.36 | 1.93% |
| 21. | Oct 31, 2017 | $112.51 | -4.39% | 2,575.26 | 2.22% | |
| 22. | Nov 30, 2017 | $119.76 | 6.44% | 2,647.58 | 2.81% | |
| 23. | Dec 31, 2017 | $120.66 | $0.97 | 1.56% | 2,673.61 | 0.98% |
| 24. | Jan 31, 2018 | $117.00 | -3.03% | 2,823.81 | 5.62% | |
| 25. | Feb 28, 2018 | $110.92 | -5.20% | 2,713.83 | -3.89% | |
| 26. | Mar 31, 2018 | $110.13 | $1.00 | 0.19% | 2,640.87 | -2.69% |
| 27. | Apr 30, 2018 | $103.54 | -5.98% | 2,648.05 | 0.27% | |
| 28. | May 31, 2018 | $100.85 | -2.60% | 2,705.27 | 2.16% | |
| 29. | Jun 30, 2018 | $105.34 | $1.00 | 5.44% | 2,718.37 | 0.48% |
| 30. | Jul 31, 2018 | $113.86 | 8.09% | 2,816.29 | 3.60% | |
| 31. | Aug 31, 2018 | $115.54 | 1.48% | 2,901.52 | 3.03% | |
| 32. | Sep 30, 2018 | $113.64 | $1.00 | -0.78% | 2,913.98 | 0.43% |
| 33. | Oct 31, 2018 | $104.30 | -8.22% | 2,711.74 | -6.94% | |
| 34. | Nov 30, 2018 | $115.37 | 10.61% | 2,760.17 | 1.79% | |
| 35. | Dec 31, 2018 | $113.94 | $1.00 | -0.37% | 2,506.85 | -9.18% |
| 36. | Jan 31, 2019 | $111.38 | -2.25% | 2,704.10 | 7.87% | |
| 37. | Feb 28, 2019 | $116.83 | 4.89% | 2,784.49 | 2.97% | |
| 38. | Mar 31, 2019 | $123.90 | $1.03 | 6.93% | 2,834.40 | 1.79% |
| 39. | Apr 30, 2019 | $128.38 | 3.62% | 2,945.83 | 3.93% | |
| 40. | May 31, 2019 | $127.89 | -0.38% | 2,752.06 | -6.58% | |
| 41. | Jun 30, 2019 | $133.28 | $1.03 | 5.02% | 2,941.76 | 6.89% |
| 42. | Jul 31, 2019 | $135.65 | 1.78% | 2,980.38 | 1.31% | |
| 43. | Aug 31, 2019 | $141.11 | 4.03% | 2,926.46 | -1.81% | |
| 44. | Sep 30, 2019 | $142.05 | $1.03 | 1.40% | 2,976.74 | 1.72% |
| 45. | Oct 31, 2019 | $132.88 | -6.46% | 3,037.56 | 2.04% | |
| 46. | Nov 30, 2019 | $136.34 | 2.60% | 3,140.98 | 3.40% | |
| 47. | Dec 31, 2019 | $137.55 | $1.03 | 1.64% | 3,230.78 | 2.86% |
| 48. | Jan 31, 2020 | $143.24 | 4.14% | 3,225.52 | -0.16% | |
| 49. | Feb 29, 2020 | $131.19 | -8.41% | 2,954.22 | -8.41% | |
| 50. | Mar 31, 2020 | $127.87 | $1.07 | -1.72% | 2,584.59 | -12.51% |
| 51. | Apr 30, 2020 | $138.48 | 8.30% | 2,912.43 | 12.68% | |
| 52. | May 31, 2020 | $141.44 | 2.14% | 3,044.31 | 4.53% | |
| 53. | Jun 30, 2020 | $141.35 | $1.07 | 0.69% | 3,100.29 | 1.84% |
| 54. | Jul 31, 2020 | $152.04 | 7.56% | 3,271.12 | 5.51% | |
| 55. | Aug 31, 2020 | $157.76 | 3.76% | 3,500.31 | 7.01% | |
| 56. | Sep 30, 2020 | $147.66 | $1.07 | -5.72% | 3,363.00 | -3.92% |
| 57. | Oct 31, 2020 | $132.59 | -10.21% | 3,269.96 | -2.77% | |
| 58. | Nov 30, 2020 | $139.31 | 5.07% | 3,621.63 | 10.75% | |
| 59. | Dec 31, 2020 | $134.83 | $1.07 | -2.45% | 3,756.07 | 3.71% |
| Average (R): | 0.47% | 1.22% | ||||
| Standard deviation: | 4.97% | 4.36% | ||||
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of KMB during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Kimberly-Clark Corp., calculation of variance and covariance of returns
| t | Date | RKMB,t | RS&P 500,t | (RKMB,t–RKMB)2 | (RS&P 500,t–RS&P 500)2 | (RKMB,t–RKMB)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Feb 29, 2016 | 1.46% | -0.41% | 0.98 | 2.67 | -1.62 |
| 2. | Mar 31, 2016 | 3.94% | 6.60% | 12.01 | 28.93 | 18.64 |
| 3. | Apr 30, 2016 | -6.93% | 0.27% | 54.77 | 0.90 | 7.03 |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 58. | Nov 30, 2020 | 5.07% | 10.75% | 21.13 | 90.91 | 43.83 |
| 59. | Dec 31, 2020 | -2.45% | 3.71% | 8.52 | 6.21 | -7.28 |
| Total (Σ): | 1,434.68 | 1,103.45 | 572.75 | |||
| t | Date | RKMB,t | RS&P 500,t | (RKMB,t–RKMB)2 | (RS&P 500,t–RS&P 500)2 | (RKMB,t–RKMB)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Feb 29, 2016 | 1.46% | -0.41% | 0.98 | 2.67 | -1.62 |
| 2. | Mar 31, 2016 | 3.94% | 6.60% | 12.01 | 28.93 | 18.64 |
| 3. | Apr 30, 2016 | -6.93% | 0.27% | 54.77 | 0.90 | 7.03 |
| 4. | May 31, 2016 | 1.48% | 1.53% | 1.01 | 0.10 | 0.31 |
| 5. | Jun 30, 2016 | 8.94% | 0.09% | 71.75 | 1.27 | -9.56 |
| 6. | Jul 31, 2016 | -5.77% | 3.56% | 38.94 | 5.48 | -14.61 |
| 7. | Aug 31, 2016 | -1.15% | -0.12% | 2.63 | 1.80 | 2.18 |
| 8. | Sep 30, 2016 | -0.78% | -0.12% | 1.57 | 1.81 | 1.68 |
| 9. | Oct 31, 2016 | -9.30% | -1.94% | 95.47 | 10.00 | 30.90 |
| 10. | Nov 30, 2016 | 1.05% | 3.42% | 0.33 | 4.83 | 1.27 |
| 11. | Dec 31, 2016 | -0.49% | 1.82% | 0.93 | 0.36 | -0.58 |
| 12. | Jan 31, 2017 | 6.14% | 1.79% | 32.16 | 0.32 | 3.22 |
| 13. | Feb 28, 2017 | 9.43% | 3.72% | 80.21 | 6.25 | 22.39 |
| 14. | Mar 31, 2017 | 0.04% | -0.04% | 0.19 | 1.59 | 0.55 |
| 15. | Apr 30, 2017 | -1.43% | 0.91% | 3.61 | 0.10 | 0.59 |
| 16. | May 31, 2017 | -0.02% | 1.16% | 0.24 | 0.00 | 0.03 |
| 17. | Jun 30, 2017 | 0.27% | 0.48% | 0.04 | 0.55 | 0.15 |
| 18. | Jul 31, 2017 | -4.61% | 1.93% | 25.81 | 0.51 | -3.63 |
| 19. | Aug 31, 2017 | 0.11% | 0.05% | 0.13 | 1.36 | 0.43 |
| 20. | Sep 30, 2017 | -3.76% | 1.93% | 17.94 | 0.50 | -3.01 |
| 21. | Oct 31, 2017 | -4.39% | 2.22% | 23.67 | 1.00 | -4.86 |
| 22. | Nov 30, 2017 | 6.44% | 2.81% | 35.67 | 2.52 | 9.48 |
| 23. | Dec 31, 2017 | 1.56% | 0.98% | 1.19 | 0.06 | -0.26 |
| 24. | Jan 31, 2018 | -3.03% | 5.62% | 12.29 | 19.34 | -15.41 |
| 25. | Feb 28, 2018 | -5.20% | -3.89% | 32.13 | 26.16 | 28.99 |
| 26. | Mar 31, 2018 | 0.19% | -2.69% | 0.08 | 15.28 | 1.10 |
| 27. | Apr 30, 2018 | -5.98% | 0.27% | 41.67 | 0.90 | 6.12 |
| 28. | May 31, 2018 | -2.60% | 2.16% | 9.42 | 0.89 | -2.89 |
| 29. | Jun 30, 2018 | 5.44% | 0.48% | 24.72 | 0.54 | -3.66 |
| 30. | Jul 31, 2018 | 8.09% | 3.60% | 58.01 | 5.67 | 18.14 |
| 31. | Aug 31, 2018 | 1.48% | 3.03% | 1.01 | 3.26 | 1.81 |
| 32. | Sep 30, 2018 | -0.78% | 0.43% | 1.56 | 0.63 | 0.99 |
| 33. | Oct 31, 2018 | -8.22% | -6.94% | 75.53 | 66.59 | 70.92 |
| 34. | Nov 30, 2018 | 10.61% | 1.79% | 102.86 | 0.32 | 5.74 |
| 35. | Dec 31, 2018 | -0.37% | -9.18% | 0.71 | 108.11 | 8.78 |
| 36. | Jan 31, 2019 | -2.25% | 7.87% | 7.39 | 44.20 | -18.07 |
| 37. | Feb 28, 2019 | 4.89% | 2.97% | 19.55 | 3.07 | 7.75 |
| 38. | Mar 31, 2019 | 6.93% | 1.79% | 41.75 | 0.33 | 3.70 |
| 39. | Apr 30, 2019 | 3.62% | 3.93% | 9.89 | 7.35 | 8.52 |
| 40. | May 31, 2019 | -0.38% | -6.58% | 0.73 | 60.81 | 6.66 |
| 41. | Jun 30, 2019 | 5.02% | 6.89% | 20.69 | 32.18 | 25.80 |
| 42. | Jul 31, 2019 | 1.78% | 1.31% | 1.71 | 0.01 | 0.12 |
| 43. | Aug 31, 2019 | 4.03% | -1.81% | 12.63 | 9.18 | -10.76 |
| 44. | Sep 30, 2019 | 1.40% | 1.72% | 0.85 | 0.25 | 0.46 |
| 45. | Oct 31, 2019 | -6.46% | 2.04% | 47.99 | 0.68 | -5.70 |
| 46. | Nov 30, 2019 | 2.60% | 3.40% | 4.55 | 4.77 | 4.66 |
| 47. | Dec 31, 2019 | 1.64% | 2.86% | 1.37 | 2.69 | 1.92 |
| 48. | Jan 31, 2020 | 4.14% | -0.16% | 13.43 | 1.91 | -5.07 |
| 49. | Feb 29, 2020 | -8.41% | -8.41% | 78.93 | 92.76 | 85.56 |
| 50. | Mar 31, 2020 | -1.72% | -12.51% | 4.78 | 188.57 | 30.03 |
| 51. | Apr 30, 2020 | 8.30% | 12.68% | 61.24 | 131.43 | 89.72 |
| 52. | May 31, 2020 | 2.14% | 4.53% | 2.77 | 10.94 | 5.51 |
| 53. | Jun 30, 2020 | 0.69% | 1.84% | 0.05 | 0.38 | 0.14 |
| 54. | Jul 31, 2020 | 7.56% | 5.51% | 50.28 | 18.40 | 30.42 |
| 55. | Aug 31, 2020 | 3.76% | 7.01% | 10.83 | 33.48 | 19.04 |
| 56. | Sep 30, 2020 | -5.72% | -3.92% | 38.39 | 26.45 | 31.86 |
| 57. | Oct 31, 2020 | -10.21% | -2.77% | 114.01 | 15.89 | 42.57 |
| 58. | Nov 30, 2020 | 5.07% | 10.75% | 21.13 | 90.91 | 43.83 |
| 59. | Dec 31, 2020 | -2.45% | 3.71% | 8.52 | 6.21 | -7.28 |
| Total (Σ): | 1,434.68 | 1,103.45 | 572.75 | |||
Show all
VarianceKMB = Σ(RKMB,t–RKMB)2 ÷ (59 – 1)
= 1,434.68 ÷ (59 – 1)
= 24.74
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (59 – 1)
= 1,103.45 ÷ (59 – 1)
= 19.02
CovarianceKMB, S&P 500 = Σ(RKMB,t–RKMB)×(RS&P 500,t–RS&P 500) ÷ (59 – 1)
= 572.75 ÷ (59 – 1)
= 9.88
Systematic Risk (β) Estimation
| VarianceKMB | 24.74 |
| VarianceS&P 500 | 19.02 |
| CovarianceKMB, S&P 500 | 9.88 |
| Correlation coefficientKMB, S&P 5001 | 0.46 |
| βKMB2 | 0.52 |
| αKMB3 | -0.16% |
Calculations
1 Correlation coefficientKMB, S&P 500
= CovarianceKMB, S&P 500 ÷ (Standard deviationKMB × Standard deviationS&P 500)
= 9.88 ÷ (4.97% × 4.36%)
= 0.46
2 βKMB
= CovarianceKMB, S&P 500 ÷ VarianceS&P 500
= 9.88 ÷ 19.02
= 0.52
3 αKMB
= AverageKMB – βKMB × AverageS&P 500
= 0.47% – 0.52 × 1.22%
= -0.16%
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | 4.79% |
| Expected rate of return on market portfolio2 | E(RM) | 13.48% |
| Systematic risk (β) of Kimberly-Clark Corp. common stock | βKMB | 0.52 |
| Expected rate of return on Kimberly-Clark Corp. common stock3 | E(RKMB) | 9.30% |
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).
3 E(RKMB) = RF + βKMB [E(RM) – RF]
= 4.79% + 0.52 [13.48% – 4.79%]
= 9.30%