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Sony Corp. (SNE) | 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

Sony Corp., monthly rates of return

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    Sony Corp. (SNE) NYSE Composite Index (NYC)
t Date PriceSNE,t1 DividendSNE,t1 RSNE,t2 PriceNYC,t RNYC,t3
  Apr 30, 2006 48.94     8,471.43  
1. May 31, 2006 45.17   -7.70% 8,189.11 -3.33%
2. Jun 30, 2006 44.04   -2.50% 8,169.07 -0.24%
3. Jul 31, 2006 45.99   4.43% 8,242.12 0.89%
. . . . . . .
. . . . . . .
. . . . . . .
70. Feb 29, 2012 21.39   17.40% 8,113.24 3.51%
71. Mar 31, 2012 20.77 0.157 -2.16% 8,206.93 1.15%
Average: -0.55%   0.11%
Standard Deviation: 10.70%   5.59%
    Sony Corp. (SNE) NYSE Composite Index (NYC)
t Date PriceSNE,t1 DividendSNE,t1 RSNE,t2 PriceNYC,t RNYC,t3
  Apr 30, 2006 48.94     8,471.43  
1. May 31, 2006 45.17   -7.70% 8,189.11 -3.33%
2. Jun 30, 2006 44.04   -2.50% 8,169.07 -0.24%
3. Jul 31, 2006 45.99   4.43% 8,242.12 0.89%
4. Aug 31, 2006 43.41   -5.61% 8,388.56 1.78%
5. Sep 30, 2006 40.36 0.1078 -6.78% 8,469.65 0.97%
6. Oct 31, 2006 40.98   1.54% 8,774.98 3.60%
7. Nov 30, 2006 39.41   -3.83% 8,969.00 2.21%
8. Dec 31, 2006 42.83   8.68% 9,139.02 1.90%
9. Jan 31, 2007 46.33   8.17% 9,254.73 1.27%
10. Feb 28, 2007 51.73   11.66% 9,124.54 -1.41%
11. Mar 31, 2007 50.49 0.1024 -2.20% 9,261.82 1.50%
12. Apr 30, 2007 53.26   5.49% 9,627.73 3.95%
13. May 31, 2007 57.70   8.34% 9,978.64 3.64%
14. Jun 30, 2007 51.37   -10.97% 9,873.02 -1.06%
15. Jul 31, 2007 52.74   2.67% 9,554.50 -3.23%
16. Aug 31, 2007 47.78   -9.40% 9,596.98 0.44%
17. Sep 30, 2007 48.06 0.1126 0.82% 10,039.30 4.61%
18. Oct 31, 2007 49.46   2.91% 10,311.60 2.71%
19. Nov 30, 2007 53.97   9.12% 9,856.85 -4.41%
20. Dec 31, 2007 54.30   0.61% 9,740.32 -1.18%
21. Jan 31, 2008 47.50   -12.52% 9,126.16 -6.31%
22. Feb 29, 2008 47.21   -0.61% 8,962.46 -1.79%
23. Mar 31, 2008 40.07 0.1192 -14.87% 8,797.29 -1.84%
24. Apr 30, 2008 45.79   14.28% 9,299.60 5.71%
25. May 31, 2008 50.39   10.05% 9,401.08 1.09%
26. Jun 30, 2008 43.74   -13.20% 8,660.48 -7.88%
27. Jul 31, 2008 37.67   -13.88% 8,438.64 -2.56%
28. Aug 31, 2008 38.20   1.41% 8,382.08 -0.67%
29. Sep 30, 2008 30.87 0.3189 -18.35% 7,532.80 -10.13%
30. Oct 31, 2008 23.24   -24.72% 6,061.09 -19.54%
31. Nov 30, 2008 19.38   -16.61% 5,599.30 -7.62%
32. Dec 31, 2008 21.87   12.85% 5,757.05 2.82%
33. Jan 31, 2009 19.22   -12.12% 5,195.79 -9.75%
34. Feb 28, 2009 16.56   -13.84% 4,617.03 -11.14%
35. Mar 31, 2009 20.63 0.1301 25.36% 4,978.98 7.84%
36. Apr 30, 2009 25.86   25.35% 5,513.36 10.73%
37. May 31, 2009 26.23   1.43% 6,004.07 8.90%
38. Jun 30, 2009 25.86   -1.41% 5,905.15 -1.65%
39. Jul 31, 2009 27.96   8.12% 6,424.28 8.79%
40. Aug 31, 2009 26.74   -4.36% 6,643.24 3.41%
41. Sep 30, 2009 29.20 0.1438 9.74% 6,910.88 4.03%
42. Oct 31, 2009 29.39   0.65% 6,739.45 -2.48%
43. Nov 30, 2009 26.69   -9.19% 7,092.36 5.24%
44. Dec 31, 2009 29.00   8.65% 7,184.96 1.31%
45. Jan 31, 2010 33.23   14.59% 6,883.78 -4.19%
46. Feb 28, 2010 34.11   2.65% 7,035.04 2.20%
47. Mar 31, 2010 38.32 0.1355 12.74% 7,447.80 5.87%
48. Apr 30, 2010 34.22   -10.70% 7,474.40 0.36%
49. May 31, 2010 30.78   -10.05% 6,791.57 -9.14%
50. Jun 30, 2010 26.68   -13.32% 6,469.65 -4.74%
51. Jul 31, 2010 31.22   17.02% 6,998.99 8.18%
52. Aug 31, 2010 27.99   -10.35% 6,704.15 -4.21%
53. Sep 30, 2010 30.92 0.1484 11.00% 7,281.07 8.61%
54. Oct 31, 2010 33.84   9.44% 7,513.35 3.19%
55. Nov 30, 2010 35.48   4.85% 7,430.94 -1.10%
56. Dec 31, 2010 35.71   0.65% 7,964.02 7.17%
57. Jan 31, 2011 34.34   -3.84% 8,139.16 2.20%
58. Feb 28, 2011 36.84   7.28% 8,438.55 3.68%
59. Mar 31, 2011 31.83 0.1556 -13.18% 8,404.98 -0.40%
60. Apr 30, 2011 28.31   -11.06% 8,671.41 3.17%
61. May 31, 2011 26.74   -5.55% 8,477.28 -2.24%
62. Jun 30, 2011 26.39   -1.31% 8,319.10 -1.87%
63. Jul 31, 2011 25.10   -4.89% 8,079.44 -2.88%
64. Aug 31, 2011 21.95   -12.55% 7,528.39 -6.82%
65. Sep 30, 2011 19.00 0.1608 -12.71% 6,791.65 -9.79%
66. Oct 31, 2011 20.97   10.37% 7,563.38 11.36%
67. Nov 30, 2011 18.05   -13.92% 7,484.50 -1.04%
68. Dec 31, 2011 18.04   -0.06% 7,477.03 -0.10%
69. Jan 31, 2012 18.22   1.00% 7,838.48 4.83%
70. Feb 29, 2012 21.39   17.40% 8,113.24 3.51%
71. Mar 31, 2012 20.77 0.157 -2.16% 8,206.93 1.15%
Average: -0.55%   0.11%
Standard Deviation: 10.70%   5.59%

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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 SNE 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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VarianceSNE 114.46
VarianceNYC 31.28
CovarianceSNE,NYC 41.86
Correlation CoefficientSNE,NYC1 0.70
βSNE2 1.34
αSNE3 -0.70

Calculations

1 CovarianceSNE,NYC ÷ (Standard DeviationSNE × Standard DeviationNYC)
= 41.86 ÷ (10.70 × 5.59)

2 CovarianceSNE,NYC ÷ VarianceNYC
= 41.86 ÷ 31.28

3 AverageSNE – βSNE × AverageNYC
= -0.55 – 1.34 × 0.11

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Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.99%
Expected rate of return on market portfolio2 E(RM) 13.16%
Systematic risk (β) of 's common stock βSNE 1.34
 
Expected rate of return on 's common stock3 E(RSNE) 16.60%

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(RSNE) = RF + βSNE [E(RM) – RF]
= 2.99% + 1.34 [13.16% – 2.99%]
= 16.60%

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