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Microsoft Excel LibreOffice Calc


Capital Asset Pricing Model (CAPM)

Difficulty: Intermediate

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Adobe's common stock.


Rates of Return

Adobe Systems Inc., monthly rates of return

Microsoft Excel LibreOffice Calc
Adobe Systems Inc. (ADBE) Standard & Poor's 500 (S&P 500)
t Date PriceADBE,t1 DividendADBE,t1 RADBE,t2 PriceS&P 500,t RS&P 500,t3
Dec 31, 2011 hidden hidden
1. Jan 31, 2012 hidden hidden hidden hidden
2. Feb 29, 2012 hidden hidden hidden hidden
3. Mar 31, 2012 hidden hidden hidden hidden
. . . . . . .
. . . . . . .
. . . . . . .
70. Oct 31, 2017 hidden hidden hidden hidden
71. Nov 30, 2017 hidden hidden hidden hidden
Average: hidden hidden
Standard Deviation: hidden hidden
Adobe Systems Inc. (ADBE) Standard & Poor's 500 (S&P 500)
t Date PriceADBE,t1 DividendADBE,t1 RADBE,t2 PriceS&P 500,t RS&P 500,t3
Dec 31, 2011 hidden hidden
1. Jan 31, 2012 hidden hidden hidden hidden
2. Feb 29, 2012 hidden hidden hidden hidden
3. Mar 31, 2012 hidden hidden hidden hidden
4. Apr 30, 2012 hidden hidden hidden hidden
5. May 31, 2012 hidden hidden hidden hidden
6. Jun 30, 2012 hidden hidden hidden hidden
7. Jul 31, 2012 hidden hidden hidden hidden
8. Aug 31, 2012 hidden hidden hidden hidden
9. Sep 30, 2012 hidden hidden hidden hidden
10. Oct 31, 2012 hidden hidden hidden hidden
11. Nov 30, 2012 hidden hidden hidden hidden
12. Dec 31, 2012 hidden hidden hidden hidden
13. Jan 31, 2013 hidden hidden hidden hidden
14. Feb 28, 2013 hidden hidden hidden hidden
15. Mar 31, 2013 hidden hidden hidden hidden
16. Apr 30, 2013 hidden hidden hidden hidden
17. May 31, 2013 hidden hidden hidden hidden
18. Jun 30, 2013 hidden hidden hidden hidden
19. Jul 31, 2013 hidden hidden hidden hidden
20. Aug 31, 2013 hidden hidden hidden hidden
21. Sep 30, 2013 hidden hidden hidden hidden
22. Oct 31, 2013 hidden hidden hidden hidden
23. Nov 30, 2013 hidden hidden hidden hidden
24. Dec 31, 2013 hidden hidden hidden hidden
25. Jan 31, 2014 hidden hidden hidden hidden
26. Feb 28, 2014 hidden hidden hidden hidden
27. Mar 31, 2014 hidden hidden hidden hidden
28. Apr 30, 2014 hidden hidden hidden hidden
29. May 31, 2014 hidden hidden hidden hidden
30. Jun 30, 2014 hidden hidden hidden hidden
31. Jul 31, 2014 hidden hidden hidden hidden
32. Aug 31, 2014 hidden hidden hidden hidden
33. Sep 30, 2014 hidden hidden hidden hidden
34. Oct 31, 2014 hidden hidden hidden hidden
35. Nov 30, 2014 hidden hidden hidden hidden
36. Dec 31, 2014 hidden hidden hidden hidden
37. Jan 31, 2015 hidden hidden hidden hidden
38. Feb 28, 2015 hidden hidden hidden hidden
39. Mar 31, 2015 hidden hidden hidden hidden
40. Apr 30, 2015 hidden hidden hidden hidden
41. May 31, 2015 hidden hidden hidden hidden
42. Jun 30, 2015 hidden hidden hidden hidden
43. Jul 31, 2015 hidden hidden hidden hidden
44. Aug 31, 2015 hidden hidden hidden hidden
45. Sep 30, 2015 hidden hidden hidden hidden
46. Oct 31, 2015 hidden hidden hidden hidden
47. Nov 30, 2015 hidden hidden hidden hidden
48. Dec 31, 2015 hidden hidden hidden hidden
49. Jan 31, 2016 hidden hidden hidden hidden
50. Feb 29, 2016 hidden hidden hidden hidden
51. Mar 31, 2016 hidden hidden hidden hidden
52. Apr 30, 2016 hidden hidden hidden hidden
53. May 31, 2016 hidden hidden hidden hidden
54. Jun 30, 2016 hidden hidden hidden hidden
55. Jul 31, 2016 hidden hidden hidden hidden
56. Aug 31, 2016 hidden hidden hidden hidden
57. Sep 30, 2016 hidden hidden hidden hidden
58. Oct 31, 2016 hidden hidden hidden hidden
59. Nov 30, 2016 hidden hidden hidden hidden
60. Dec 31, 2016 hidden hidden hidden hidden
61. Jan 31, 2017 hidden hidden hidden hidden
62. Feb 28, 2017 hidden hidden hidden hidden
63. Mar 31, 2017 hidden hidden hidden hidden
64. Apr 30, 2017 hidden hidden hidden hidden
65. May 31, 2017 hidden hidden hidden hidden
66. Jun 30, 2017 hidden hidden hidden hidden
67. Jul 31, 2017 hidden hidden hidden hidden
68. Aug 31, 2017 hidden hidden hidden hidden
69. Sep 30, 2017 hidden hidden hidden hidden
70. Oct 31, 2017 hidden hidden hidden hidden
71. Nov 30, 2017 hidden hidden hidden hidden
Average: hidden hidden
Standard Deviation: hidden hidden

Show All

1 Data in USD $ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of ADBE during period t

3 Rate of return on S&P 500 (the market portfolio proxy) during period t


Systematic Risk (β) Estimation

Microsoft Excel LibreOffice Calc
VarianceADBE hidden
VarianceS&P 500 hidden
CovarianceADBE, S&P 500 hidden
Correlation CoefficientADBE, S&P 5001 hidden
βADBE2 hidden
αADBE3 hidden

Calculations

1 CovarianceADBE, S&P 500 ÷ (Standard DeviationADBE × Standard DeviationS&P 500)
= hidden ÷ (hidden × hidden)

2 CovarianceADBE, S&P 500 ÷ VarianceS&P 500
= hidden ÷ hidden

3 AverageADBE – βADBE × AverageS&P 500
= hiddenhidden × hidden


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF hidden
Expected rate of return on market portfolio2 E(RM) hidden
Systematic risk (β) of Adobe's common stock βADBE hidden
Expected rate of return on Adobe's common stock3 E(RADBE) hidden

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(RADBE) = RF + βADBE [E(RM) – RF]
= hidden + hidden [hiddenhidden]
= hidden