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Target Corp. (TGT) | 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

Target Corp., monthly rates of return

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    Target Corp. (TGT) NYSE Composite Index (NYC)
t Date PriceTGT,t1 DividendTGT,t1 RTGT,t2 PriceNYC,t RNYC,t3
  Feb 28, 2007 61.53     9,124.54  
1. Mar 31, 2007 59.26   -3.69% 9,261.82 1.50%
2. Apr 30, 2007 59.37   0.19% 9,627.73 3.95%
3. May 31, 2007 62.43 0.12 5.36% 9,978.64 3.64%
. . . . . . .
. . . . . . .
. . . . . . .
70. Dec 31, 2012 59.17   -6.27% 8,443.51 2.22%
71. Jan 31, 2013 60.41   2.10% 8,894.71 5.34%
Average: 0.39%   0.13%
Standard Deviation: 7.64%   5.71%
    Target Corp. (TGT) NYSE Composite Index (NYC)
t Date PriceTGT,t1 DividendTGT,t1 RTGT,t2 PriceNYC,t RNYC,t3
  Feb 28, 2007 61.53     9,124.54  
1. Mar 31, 2007 59.26   -3.69% 9,261.82 1.50%
2. Apr 30, 2007 59.37   0.19% 9,627.73 3.95%
3. May 31, 2007 62.43 0.12 5.36% 9,978.64 3.64%
4. Jun 30, 2007 63.60   1.87% 9,873.02 -1.06%
5. Jul 31, 2007 60.57   -4.76% 9,554.50 -3.23%
6. Aug 31, 2007 65.93 0.14 9.08% 9,596.98 0.44%
7. Sep 30, 2007 63.57   -3.58% 10,039.30 4.61%
8. Oct 31, 2007 61.36   -3.48% 10,311.60 2.71%
9. Nov 30, 2007 59.97 0.14 -2.04% 9,856.85 -4.41%
10. Dec 31, 2007 50.00   -16.62% 9,740.32 -1.18%
11. Jan 31, 2008 55.42   10.84% 9,126.16 -6.31%
12. Feb 29, 2008 52.61 0.14 -4.82% 8,962.46 -1.79%
13. Mar 31, 2008 50.68   -3.67% 8,797.29 -1.84%
14. Apr 30, 2008 53.13   4.83% 9,299.60 5.71%
15. May 31, 2008 53.36 0.14 0.70% 9,401.08 1.09%
16. Jun 30, 2008 46.49   -12.87% 8,660.48 -7.88%
17. Jul 31, 2008 45.23   -2.71% 8,438.64 -2.56%
18. Aug 31, 2008 53.02 0.16 17.58% 8,382.08 -0.67%
19. Sep 30, 2008 49.05   -7.49% 7,532.80 -10.13%
20. Oct 31, 2008 40.12   -18.21% 6,061.09 -19.54%
21. Nov 30, 2008 33.76 0.16 -15.45% 5,599.30 -7.62%
22. Dec 31, 2008 34.53   2.28% 5,757.05 2.82%
23. Jan 31, 2009 31.20   -9.64% 5,195.79 -9.75%
24. Feb 28, 2009 28.31 0.16 -8.75% 4,617.03 -11.14%
25. Mar 31, 2009 34.39   21.48% 4,978.98 7.84%
26. Apr 30, 2009 41.26   19.98% 5,513.36 10.73%
27. May 31, 2009 39.30 0.16 -4.36% 6,004.07 8.90%
28. Jun 30, 2009 39.47   0.43% 5,905.15 -1.65%
29. Jul 31, 2009 43.62   10.51% 6,424.28 8.79%
30. Aug 31, 2009 47.00 0.17 8.14% 6,643.24 3.41%
31. Sep 30, 2009 46.68   -0.68% 6,910.88 4.03%
32. Oct 31, 2009 48.43   3.75% 6,739.45 -2.48%
33. Nov 30, 2009 46.56 0.17 -3.51% 7,092.36 5.24%
34. Dec 31, 2009 48.37   3.89% 7,184.96 1.31%
35. Jan 31, 2010 51.27   6.00% 6,883.78 -4.19%
36. Feb 28, 2010 51.52 0.17 0.82% 7,035.04 2.20%
37. Mar 31, 2010 52.60   2.10% 7,447.80 5.87%
38. Apr 30, 2010 56.87   8.12% 7,474.40 0.36%
39. May 31, 2010 54.53 0.17 -3.82% 6,791.57 -9.14%
40. Jun 30, 2010 49.17   -9.83% 6,469.65 -4.74%
41. Jul 31, 2010 51.32   4.37% 6,998.99 8.18%
42. Aug 31, 2010 51.16 0.25 0.18% 6,704.15 -4.21%
43. Sep 30, 2010 53.44   4.46% 7,281.07 8.61%
44. Oct 31, 2010 51.94   -2.81% 7,513.35 3.19%
45. Nov 30, 2010 56.94 0.25 10.11% 7,430.94 -1.10%
46. Dec 31, 2010 60.13   5.60% 7,964.02 7.17%
47. Jan 31, 2011 54.83   -8.81% 8,139.16 2.20%
48. Feb 28, 2011 52.55 0.25 -3.70% 8,438.55 3.68%
49. Mar 31, 2011 50.01   -4.83% 8,404.98 -0.40%
50. Apr 30, 2011 49.10   -1.82% 8,671.41 3.17%
51. May 31, 2011 49.53 0.25 1.38% 8,477.28 -2.24%
52. Jun 30, 2011 46.91   -5.29% 8,319.10 -1.87%
53. Jul 31, 2011 51.49   9.76% 8,079.44 -2.88%
54. Aug 31, 2011 51.67 0.30 0.93% 7,528.39 -6.82%
55. Sep 30, 2011 49.04   -5.09% 6,791.65 -9.79%
56. Oct 31, 2011 54.75   11.64% 7,563.38 11.36%
57. Nov 30, 2011 52.70 0.30 -3.20% 7,484.50 -1.04%
58. Dec 31, 2011 51.22   -2.81% 7,477.03 -0.10%
59. Jan 31, 2012 50.81   -0.80% 7,838.48 4.83%
60. Feb 29, 2012 56.69 0.30 12.16% 8,113.24 3.51%
61. Mar 31, 2012 58.27   2.79% 8,206.93 1.15%
62. Apr 30, 2012 57.94   -0.57% 8,119.06 -1.07%
63. May 31, 2012 57.91 0.30 0.47% 7,463.96 -8.07%
64. Jun 30, 2012 58.19   0.48% 7,801.84 4.53%
65. Jul 31, 2012 60.65   4.23% 7,863.93 0.80%
66. Aug 31, 2012 64.09 0.36 6.27% 8,014.93 1.92%
67. Sep 30, 2012 63.47   -0.97% 8,251.00 2.95%
68. Oct 31, 2012 63.75   0.44% 8,221.40 -0.36%
69. Nov 30, 2012 63.13 0.36 -0.41% 8,260.43 0.47%
70. Dec 31, 2012 59.17   -6.27% 8,443.51 2.22%
71. Jan 31, 2013 60.41   2.10% 8,894.71 5.34%
Average: 0.39%   0.13%
Standard Deviation: 7.64%   5.71%

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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 TGT 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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VarianceTGT 58.38
VarianceNYC 32.60
CovarianceTGT,NYC 23.24
Correlation CoefficientTGT,NYC1 0.53
βTGT2 0.71
αTGT3 0.30

Calculations

1 CovarianceTGT,NYC ÷ (Standard DeviationTGT × Standard DeviationNYC)
= 23.24 ÷ (7.64 × 5.71)

2 CovarianceTGT,NYC ÷ VarianceNYC
= 23.24 ÷ 32.60

3 AverageTGT – βTGT × AverageNYC
= 0.39 – 0.71 × 0.13

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Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.82%
Expected rate of return on market portfolio2 E(RM) 13.10%
Systematic risk (β) of 's common stock βTGT 0.71
 
Expected rate of return on 's common stock3 E(RTGT) 10.15%

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(RTGT) = RF + βTGT [E(RM) – RF]
= 2.82% + 0.71 [13.10% – 2.82%]
= 10.15%

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