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 Toyota Motor Corp. common stock.
Rates of Return
Toyota Motor Corp., monthly rates of return
| Toyota Motor Corp. (TM) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceTM,t1 | DividendTM,t1 | RTM,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Apr 30, 2009 | $79.16 | 872.81 | ||||
| 1. | May 31, 2009 | $80.15 | 1.25% | 919.14 | 5.31% | |
| 2. | Jun 30, 2009 | $75.53 | -5.76% | 919.32 | 0.02% | |
| 3. | Jul 31, 2009 | $84.18 | 11.45% | 987.48 | 7.41% | |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Feb 28, 2015 | $135.37 | 5.06% | 2,104.50 | 5.49% | |
| 71. | Mar 31, 2015 | $139.89 | $2.08 | 4.88% | 2,067.89 | -1.74% |
| Average (R): | 1.13% | 1.29% | ||||
| Standard deviation: | 5.74% | 3.73% | ||||
| Toyota Motor Corp. (TM) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceTM,t1 | DividendTM,t1 | RTM,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Apr 30, 2009 | $79.16 | 872.81 | ||||
| 1. | May 31, 2009 | $80.15 | 1.25% | 919.14 | 5.31% | |
| 2. | Jun 30, 2009 | $75.53 | -5.76% | 919.32 | 0.02% | |
| 3. | Jul 31, 2009 | $84.18 | 11.45% | 987.48 | 7.41% | |
| 4. | Aug 31, 2009 | $85.19 | 1.20% | 1,020.62 | 3.36% | |
| 5. | Sep 30, 2009 | $78.57 | $0.44 | -7.25% | 1,057.08 | 3.57% |
| 6. | Oct 31, 2009 | $78.89 | 0.41% | 1,036.19 | -1.98% | |
| 7. | Nov 30, 2009 | $78.54 | -0.44% | 1,095.63 | 5.74% | |
| 8. | Dec 31, 2009 | $84.16 | 7.16% | 1,115.10 | 1.78% | |
| 9. | Jan 31, 2010 | $77.00 | -8.51% | 1,073.87 | -3.70% | |
| 10. | Feb 28, 2010 | $74.83 | -2.82% | 1,104.49 | 2.85% | |
| 11. | Mar 31, 2010 | $80.42 | $0.52 | 8.17% | 1,169.43 | 5.88% |
| 12. | Apr 30, 2010 | $77.09 | -4.14% | 1,186.69 | 1.48% | |
| 13. | May 31, 2010 | $72.34 | -6.16% | 1,089.41 | -8.20% | |
| 14. | Jun 30, 2010 | $68.57 | -5.21% | 1,030.71 | -5.39% | |
| 15. | Jul 31, 2010 | $70.23 | 2.42% | 1,101.60 | 6.88% | |
| 16. | Aug 31, 2010 | $67.84 | -3.40% | 1,049.33 | -4.74% | |
| 17. | Sep 30, 2010 | $71.58 | $0.48 | 6.22% | 1,141.20 | 8.76% |
| 18. | Oct 31, 2010 | $70.82 | -1.06% | 1,183.26 | 3.69% | |
| 19. | Nov 30, 2010 | $77.69 | 9.70% | 1,180.55 | -0.23% | |
| 20. | Dec 31, 2010 | $78.63 | 1.21% | 1,257.64 | 6.53% | |
| 21. | Jan 31, 2011 | $82.18 | 4.51% | 1,286.12 | 2.26% | |
| 22. | Feb 28, 2011 | $93.30 | 13.53% | 1,327.22 | 3.20% | |
| 23. | Mar 31, 2011 | $80.25 | $0.72 | -13.22% | 1,325.83 | -0.10% |
| 24. | Apr 30, 2011 | $79.68 | -0.71% | 1,363.61 | 2.85% | |
| 25. | May 31, 2011 | $83.29 | 4.53% | 1,345.20 | -1.35% | |
| 26. | Jun 30, 2011 | $82.42 | -1.04% | 1,320.64 | -1.83% | |
| 27. | Jul 31, 2011 | $81.92 | -0.61% | 1,292.28 | -2.15% | |
| 28. | Aug 31, 2011 | $71.84 | -12.30% | 1,218.89 | -5.68% | |
| 29. | Sep 30, 2011 | $68.26 | $0.50 | -4.29% | 1,131.42 | -7.18% |
| 30. | Oct 31, 2011 | $66.71 | -2.27% | 1,253.30 | 10.77% | |
| 31. | Nov 30, 2011 | $65.91 | -1.20% | 1,246.96 | -0.51% | |
| 32. | Dec 31, 2011 | $66.13 | 0.33% | 1,257.60 | 0.85% | |
| 33. | Jan 31, 2012 | $73.48 | 11.11% | 1,312.41 | 4.36% | |
| 34. | Feb 29, 2012 | $82.71 | 12.56% | 1,365.68 | 4.06% | |
| 35. | Mar 31, 2012 | $86.82 | $0.72 | 5.84% | 1,408.47 | 3.13% |
| 36. | Apr 30, 2012 | $81.78 | -5.81% | 1,397.91 | -0.75% | |
| 37. | May 31, 2012 | $76.89 | -5.98% | 1,310.33 | -6.27% | |
| 38. | Jun 30, 2012 | $80.48 | 4.67% | 1,362.16 | 3.96% | |
| 39. | Jul 31, 2012 | $76.51 | -4.93% | 1,379.32 | 1.26% | |
| 40. | Aug 31, 2012 | $79.62 | 4.06% | 1,406.58 | 1.98% | |
| 41. | Sep 30, 2012 | $78.51 | $0.76 | -0.44% | 1,440.67 | 2.42% |
| 42. | Oct 31, 2012 | $77.47 | -1.32% | 1,412.16 | -1.98% | |
| 43. | Nov 30, 2012 | $86.08 | 11.11% | 1,416.18 | 0.28% | |
| 44. | Dec 31, 2012 | $93.25 | 8.33% | 1,426.19 | 0.71% | |
| 45. | Jan 31, 2013 | $95.37 | 2.27% | 1,498.11 | 5.04% | |
| 46. | Feb 28, 2013 | $102.60 | 7.58% | 1,514.68 | 1.11% | |
| 47. | Mar 31, 2013 | $102.64 | $1.26 | 1.27% | 1,569.19 | 3.60% |
| 48. | Apr 30, 2013 | $116.30 | 13.31% | 1,597.57 | 1.81% | |
| 49. | May 31, 2013 | $117.55 | 1.07% | 1,630.74 | 2.08% | |
| 50. | Jun 30, 2013 | $120.66 | 2.65% | 1,606.28 | -1.50% | |
| 51. | Jul 31, 2013 | $121.90 | 1.03% | 1,685.73 | 4.95% | |
| 52. | Aug 31, 2013 | $120.79 | -0.91% | 1,632.97 | -3.13% | |
| 53. | Sep 30, 2013 | $128.03 | $1.32 | 7.09% | 1,681.55 | 2.97% |
| 54. | Oct 31, 2013 | $129.42 | 1.09% | 1,756.54 | 4.46% | |
| 55. | Nov 30, 2013 | $125.05 | -3.38% | 1,805.81 | 2.80% | |
| 56. | Dec 31, 2013 | $121.92 | -2.50% | 1,848.36 | 2.36% | |
| 57. | Jan 31, 2014 | $114.76 | -5.87% | 1,782.59 | -3.56% | |
| 58. | Feb 28, 2014 | $115.30 | 0.47% | 1,859.45 | 4.31% | |
| 59. | Mar 31, 2014 | $112.90 | $1.94 | -0.40% | 1,872.34 | 0.69% |
| 60. | Apr 30, 2014 | $108.42 | -3.97% | 1,883.95 | 0.62% | |
| 61. | May 31, 2014 | $113.11 | 4.33% | 1,923.57 | 2.10% | |
| 62. | Jun 30, 2014 | $119.66 | 5.79% | 1,960.23 | 1.91% | |
| 63. | Jul 31, 2014 | $117.99 | -1.40% | 1,930.67 | -1.51% | |
| 64. | Aug 31, 2014 | $114.32 | -3.11% | 2,003.37 | 3.77% | |
| 65. | Sep 30, 2014 | $117.53 | $1.36 | 4.00% | 1,972.29 | -1.55% |
| 66. | Oct 31, 2014 | $121.35 | 3.25% | 2,018.05 | 2.32% | |
| 67. | Nov 30, 2014 | $123.13 | 1.47% | 2,067.56 | 2.45% | |
| 68. | Dec 31, 2014 | $125.48 | 1.91% | 2,058.90 | -0.42% | |
| 69. | Jan 31, 2015 | $128.85 | 2.69% | 1,994.99 | -3.10% | |
| 70. | Feb 28, 2015 | $135.37 | 5.06% | 2,104.50 | 5.49% | |
| 71. | Mar 31, 2015 | $139.89 | $2.08 | 4.88% | 2,067.89 | -1.74% |
| Average (R): | 1.13% | 1.29% | ||||
| Standard deviation: | 5.74% | 3.73% | ||||
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of TM during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Toyota Motor Corp., calculation of variance and covariance of returns
| t | Date | RTM,t | RS&P 500,t | (RTM,t–RTM)2 | (RS&P 500,t–RS&P 500)2 | (RTM,t–RTM)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | May 31, 2009 | 1.25% | 5.31% | 0.01 | 16.14 | 0.47 |
| 2. | Jun 30, 2009 | -5.76% | 0.02% | 47.59 | 1.62 | 8.77 |
| 3. | Jul 31, 2009 | 11.45% | 7.41% | 106.46 | 37.50 | 63.18 |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Feb 28, 2015 | 5.06% | 5.49% | 15.41 | 17.63 | 16.48 |
| 71. | Mar 31, 2015 | 4.88% | -1.74% | 14.00 | 9.18 | -11.34 |
| Total (Σ): | 2,305.67 | 976.27 | 636.35 | |||
| t | Date | RTM,t | RS&P 500,t | (RTM,t–RTM)2 | (RS&P 500,t–RS&P 500)2 | (RTM,t–RTM)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | May 31, 2009 | 1.25% | 5.31% | 0.01 | 16.14 | 0.47 |
| 2. | Jun 30, 2009 | -5.76% | 0.02% | 47.59 | 1.62 | 8.77 |
| 3. | Jul 31, 2009 | 11.45% | 7.41% | 106.46 | 37.50 | 63.18 |
| 4. | Aug 31, 2009 | 1.20% | 3.36% | 0.00 | 4.27 | 0.14 |
| 5. | Sep 30, 2009 | -7.25% | 3.57% | 70.37 | 5.21 | -19.14 |
| 6. | Oct 31, 2009 | 0.41% | -1.98% | 0.53 | 10.67 | 2.38 |
| 7. | Nov 30, 2009 | -0.44% | 5.74% | 2.49 | 19.76 | -7.02 |
| 8. | Dec 31, 2009 | 7.16% | 1.78% | 36.25 | 0.24 | 2.93 |
| 9. | Jan 31, 2010 | -8.51% | -3.70% | 92.97 | 24.88 | 48.10 |
| 10. | Feb 28, 2010 | -2.82% | 2.85% | 15.62 | 2.44 | -6.17 |
| 11. | Mar 31, 2010 | 8.17% | 5.88% | 49.43 | 21.06 | 32.26 |
| 12. | Apr 30, 2010 | -4.14% | 1.48% | 27.83 | 0.03 | -0.98 |
| 13. | May 31, 2010 | -6.16% | -8.20% | 53.23 | 90.03 | 69.23 |
| 14. | Jun 30, 2010 | -5.21% | -5.39% | 40.27 | 44.61 | 42.38 |
| 15. | Jul 31, 2010 | 2.42% | 6.88% | 1.65 | 31.22 | 7.19 |
| 16. | Aug 31, 2010 | -3.40% | -4.74% | 20.59 | 36.43 | 27.39 |
| 17. | Sep 30, 2010 | 6.22% | 8.76% | 25.87 | 55.72 | 37.96 |
| 18. | Oct 31, 2010 | -1.06% | 3.69% | 4.82 | 5.74 | -5.26 |
| 19. | Nov 30, 2010 | 9.70% | -0.23% | 73.38 | 2.31 | -13.02 |
| 20. | Dec 31, 2010 | 1.21% | 6.53% | 0.01 | 27.45 | 0.40 |
| 21. | Jan 31, 2011 | 4.51% | 2.26% | 11.43 | 0.95 | 3.29 |
| 22. | Feb 28, 2011 | 13.53% | 3.20% | 153.68 | 3.63 | 23.62 |
| 23. | Mar 31, 2011 | -13.22% | -0.10% | 205.92 | 1.95 | 20.02 |
| 24. | Apr 30, 2011 | -0.71% | 2.85% | 3.40 | 2.43 | -2.88 |
| 25. | May 31, 2011 | 4.53% | -1.35% | 11.53 | 6.97 | -8.97 |
| 26. | Jun 30, 2011 | -1.04% | -1.83% | 4.75 | 9.71 | 6.79 |
| 27. | Jul 31, 2011 | -0.61% | -2.15% | 3.03 | 11.82 | 5.99 |
| 28. | Aug 31, 2011 | -12.30% | -5.68% | 180.61 | 48.58 | 93.67 |
| 29. | Sep 30, 2011 | -4.29% | -7.18% | 29.40 | 71.69 | 45.91 |
| 30. | Oct 31, 2011 | -2.27% | 10.77% | 11.60 | 89.90 | -32.29 |
| 31. | Nov 30, 2011 | -1.20% | -0.51% | 5.45 | 3.23 | 4.19 |
| 32. | Dec 31, 2011 | 0.33% | 0.85% | 0.64 | 0.19 | 0.35 |
| 33. | Jan 31, 2012 | 11.11% | 4.36% | 99.60 | 9.41 | 30.61 |
| 34. | Feb 29, 2012 | 12.56% | 4.06% | 130.57 | 7.66 | 31.63 |
| 35. | Mar 31, 2012 | 5.84% | 3.13% | 22.14 | 3.39 | 8.67 |
| 36. | Apr 30, 2012 | -5.81% | -0.75% | 48.16 | 4.16 | 14.16 |
| 37. | May 31, 2012 | -5.98% | -6.27% | 50.61 | 57.09 | 53.75 |
| 38. | Jun 30, 2012 | 4.67% | 3.96% | 12.49 | 7.10 | 9.42 |
| 39. | Jul 31, 2012 | -4.93% | 1.26% | 36.81 | 0.00 | 0.19 |
| 40. | Aug 31, 2012 | 4.06% | 1.98% | 8.59 | 0.47 | 2.01 |
| 41. | Sep 30, 2012 | -0.44% | 2.42% | 2.48 | 1.28 | -1.78 |
| 42. | Oct 31, 2012 | -1.32% | -1.98% | 6.05 | 10.69 | 8.04 |
| 43. | Nov 30, 2012 | 11.11% | 0.28% | 99.59 | 1.01 | -10.04 |
| 44. | Dec 31, 2012 | 8.33% | 0.71% | 51.77 | 0.34 | -4.20 |
| 45. | Jan 31, 2013 | 2.27% | 5.04% | 1.30 | 14.08 | 4.27 |
| 46. | Feb 28, 2013 | 7.58% | 1.11% | 41.56 | 0.03 | -1.19 |
| 47. | Mar 31, 2013 | 1.27% | 3.60% | 0.02 | 5.33 | 0.31 |
| 48. | Apr 30, 2013 | 13.31% | 1.81% | 148.21 | 0.27 | 6.30 |
| 49. | May 31, 2013 | 1.07% | 2.08% | 0.00 | 0.62 | -0.05 |
| 50. | Jun 30, 2013 | 2.65% | -1.50% | 2.28 | 7.79 | -4.22 |
| 51. | Jul 31, 2013 | 1.03% | 4.95% | 0.01 | 13.36 | -0.39 |
| 52. | Aug 31, 2013 | -0.91% | -3.13% | 4.18 | 19.54 | 9.04 |
| 53. | Sep 30, 2013 | 7.09% | 2.97% | 35.43 | 2.84 | 10.02 |
| 54. | Oct 31, 2013 | 1.09% | 4.46% | 0.00 | 10.04 | -0.15 |
| 55. | Nov 30, 2013 | -3.38% | 2.80% | 20.35 | 2.29 | -6.83 |
| 56. | Dec 31, 2013 | -2.50% | 2.36% | 13.23 | 1.14 | -3.88 |
| 57. | Jan 31, 2014 | -5.87% | -3.56% | 49.10 | 23.51 | 33.98 |
| 58. | Feb 28, 2014 | 0.47% | 4.31% | 0.44 | 9.13 | -2.01 |
| 59. | Mar 31, 2014 | -0.40% | 0.69% | 2.35 | 0.36 | 0.92 |
| 60. | Apr 30, 2014 | -3.97% | 0.62% | 26.04 | 0.45 | 3.42 |
| 61. | May 31, 2014 | 4.33% | 2.10% | 10.18 | 0.66 | 2.59 |
| 62. | Jun 30, 2014 | 5.79% | 1.91% | 21.68 | 0.38 | 2.86 |
| 63. | Jul 31, 2014 | -1.40% | -1.51% | 6.40 | 7.83 | 7.08 |
| 64. | Aug 31, 2014 | -3.11% | 3.77% | 18.02 | 6.12 | -10.51 |
| 65. | Sep 30, 2014 | 4.00% | -1.55% | 8.20 | 8.08 | -8.14 |
| 66. | Oct 31, 2014 | 3.25% | 2.32% | 4.48 | 1.06 | 2.18 |
| 67. | Nov 30, 2014 | 1.47% | 2.45% | 0.11 | 1.35 | 0.39 |
| 68. | Dec 31, 2014 | 1.91% | -0.42% | 0.60 | 2.92 | -1.32 |
| 69. | Jan 31, 2015 | 2.69% | -3.10% | 2.41 | 19.31 | -6.82 |
| 70. | Feb 28, 2015 | 5.06% | 5.49% | 15.41 | 17.63 | 16.48 |
| 71. | Mar 31, 2015 | 4.88% | -1.74% | 14.00 | 9.18 | -11.34 |
| Total (Σ): | 2,305.67 | 976.27 | 636.35 | |||
Show all
VarianceTM = Σ(RTM,t–RTM)2 ÷ (71 – 1)
= 2,305.67 ÷ (71 – 1)
= 32.94
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)
= 976.27 ÷ (71 – 1)
= 13.95
CovarianceTM, S&P 500 = Σ(RTM,t–RTM)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)
= 636.35 ÷ (71 – 1)
= 9.09
Systematic Risk (β) Estimation
| VarianceTM | 32.94 |
| VarianceS&P 500 | 13.95 |
| CovarianceTM, S&P 500 | 9.09 |
| Correlation coefficientTM, S&P 5001 | 0.42 |
| βTM2 | 0.65 |
| αTM3 | 0.29% |
Calculations
1 Correlation coefficientTM, S&P 500
= CovarianceTM, S&P 500 ÷ (Standard deviationTM × Standard deviationS&P 500)
= 9.09 ÷ (5.74% × 3.73%)
= 0.42
2 βTM
= CovarianceTM, S&P 500 ÷ VarianceS&P 500
= 9.09 ÷ 13.95
= 0.65
3 αTM
= AverageTM – βTM × AverageS&P 500
= 1.13% – 0.65 × 1.29%
= 0.29%
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | 4.90% |
| Expected rate of return on market portfolio2 | E(RM) | 13.55% |
| Systematic risk (β) of Toyota Motor Corp. common stock | βTM | 0.65 |
| Expected rate of return on Toyota Motor Corp. common stock3 | E(RTM) | 10.54% |
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(RTM) = RF + βTM [E(RM) – RF]
= 4.90% + 0.65 [13.55% – 4.90%]
= 10.54%