Stock Analysis on Net

Amazon.com Inc. (NASDAQ:AMZN)

Capital Asset Pricing Model (CAPM) 

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


Rates of Return

Amazon.com Inc., monthly rates of return

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Amazon.com Inc. (AMZN) Standard & Poor’s 500 (S&P 500)
t Date PriceAMZN,t1 DividendAMZN,t1 RAMZN,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2017 $41.17 2,278.87
1. Feb 28, 2017 $42.25 2.62% 2,363.64 3.72%
2. Mar 31, 2017 $44.33 4.92% 2,362.72 -0.04%
3. Apr 30, 2017 $46.25 4.33% 2,384.20 0.91%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2021 $175.35 3.99% 4,567.00 -0.83%
59. Dec 31, 2021 $166.72 -4.92% 4,766.18 4.36%
Average (R): 2.71% 1.36%
Standard deviation: 8.04% 4.48%
Amazon.com Inc. (AMZN) Standard & Poor’s 500 (S&P 500)
t Date PriceAMZN,t1 DividendAMZN,t1 RAMZN,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2017 $41.17 2,278.87
1. Feb 28, 2017 $42.25 2.62% 2,363.64 3.72%
2. Mar 31, 2017 $44.33 4.92% 2,362.72 -0.04%
3. Apr 30, 2017 $46.25 4.33% 2,384.20 0.91%
4. May 31, 2017 $49.73 7.52% 2,411.80 1.16%
5. Jun 30, 2017 $48.40 -2.67% 2,423.41 0.48%
6. Jul 31, 2017 $49.39 2.05% 2,470.30 1.93%
7. Aug 31, 2017 $49.03 -0.73% 2,471.65 0.05%
8. Sep 30, 2017 $48.07 -1.96% 2,519.36 1.93%
9. Oct 31, 2017 $55.26 14.96% 2,575.26 2.22%
10. Nov 30, 2017 $58.84 6.48% 2,647.58 2.81%
11. Dec 31, 2017 $58.47 -0.63% 2,673.61 0.98%
12. Jan 31, 2018 $72.54 24.06% 2,823.81 5.62%
13. Feb 28, 2018 $75.62 4.25% 2,713.83 -3.89%
14. Mar 31, 2018 $72.37 -4.30% 2,640.87 -2.69%
15. Apr 30, 2018 $78.31 8.21% 2,648.05 0.27%
16. May 31, 2018 $81.48 4.05% 2,705.27 2.16%
17. Jun 30, 2018 $84.99 4.31% 2,718.37 0.48%
18. Jul 31, 2018 $88.87 4.57% 2,816.29 3.60%
19. Aug 31, 2018 $100.64 13.24% 2,901.52 3.03%
20. Sep 30, 2018 $100.15 -0.49% 2,913.98 0.43%
21. Oct 31, 2018 $79.90 -20.22% 2,711.74 -6.94%
22. Nov 30, 2018 $84.51 5.77% 2,760.17 1.79%
23. Dec 31, 2018 $75.10 -11.13% 2,506.85 -9.18%
24. Jan 31, 2019 $85.94 14.43% 2,704.10 7.87%
25. Feb 28, 2019 $81.99 -4.60% 2,784.49 2.97%
26. Mar 31, 2019 $89.04 8.60% 2,834.40 1.79%
27. Apr 30, 2019 $96.33 8.19% 2,945.83 3.93%
28. May 31, 2019 $88.75 -7.87% 2,752.06 -6.58%
29. Jun 30, 2019 $94.68 6.68% 2,941.76 6.89%
30. Jul 31, 2019 $93.34 -1.42% 2,980.38 1.31%
31. Aug 31, 2019 $88.81 -4.85% 2,926.46 -1.81%
32. Sep 30, 2019 $86.80 -2.26% 2,976.74 1.72%
33. Oct 31, 2019 $88.83 2.34% 3,037.56 2.04%
34. Nov 30, 2019 $90.04 1.36% 3,140.98 3.40%
35. Dec 31, 2019 $92.39 2.61% 3,230.78 2.86%
36. Jan 31, 2020 $100.44 8.71% 3,225.52 -0.16%
37. Feb 29, 2020 $94.19 -6.22% 2,954.22 -8.41%
38. Mar 31, 2020 $97.49 3.50% 2,584.59 -12.51%
39. Apr 30, 2020 $123.70 26.88% 2,912.43 12.68%
40. May 31, 2020 $122.12 -1.28% 3,044.31 4.53%
41. Jun 30, 2020 $137.94 12.95% 3,100.29 1.84%
42. Jul 31, 2020 $158.23 14.71% 3,271.12 5.51%
43. Aug 31, 2020 $172.55 9.05% 3,500.31 7.01%
44. Sep 30, 2020 $157.44 -8.76% 3,363.00 -3.92%
45. Oct 31, 2020 $151.81 -3.58% 3,269.96 -2.77%
46. Nov 30, 2020 $158.40 4.34% 3,621.63 10.75%
47. Dec 31, 2020 $162.85 2.81% 3,756.07 3.71%
48. Jan 31, 2021 $160.31 -1.56% 3,714.24 -1.11%
49. Feb 28, 2021 $154.65 -3.53% 3,811.15 2.61%
50. Mar 31, 2021 $154.70 0.03% 3,972.89 4.24%
51. Apr 30, 2021 $173.37 12.07% 4,181.17 5.24%
52. May 31, 2021 $161.15 -7.05% 4,204.11 0.55%
53. Jun 30, 2021 $172.01 6.74% 4,297.50 2.22%
54. Jul 31, 2021 $166.38 -3.27% 4,395.26 2.27%
55. Aug 31, 2021 $173.54 4.30% 4,522.68 2.90%
56. Sep 30, 2021 $164.25 -5.35% 4,307.54 -4.76%
57. Oct 31, 2021 $168.62 2.66% 4,605.38 6.91%
58. Nov 30, 2021 $175.35 3.99% 4,567.00 -0.83%
59. Dec 31, 2021 $166.72 -4.92% 4,766.18 4.36%
Average (R): 2.71% 1.36%
Standard deviation: 8.04% 4.48%

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

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

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


Variance and Covariance

Amazon.com Inc., calculation of variance and covariance of returns

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t Date RAMZN,t RS&P 500,t (RAMZN,tRAMZN)2 (RS&P 500,tRS&P 500)2 (RAMZN,tRAMZN)×(RS&P 500,tRS&P 500)
1. Feb 28, 2017 2.62% 3.72% 0.01 5.58 -0.20
2. Mar 31, 2017 4.92% -0.04% 4.91 1.95 -3.10
3. Apr 30, 2017 4.33% 0.91% 2.64 0.20 -0.73
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2021 3.99% -0.83% 1.65 4.80 -2.82
59. Dec 31, 2021 -4.92% 4.36% 58.18 9.02 -22.91
Total (Σ): 3,752.88 1,164.17 1,275.76
t Date RAMZN,t RS&P 500,t (RAMZN,tRAMZN)2 (RS&P 500,tRS&P 500)2 (RAMZN,tRAMZN)×(RS&P 500,tRS&P 500)
1. Feb 28, 2017 2.62% 3.72% 0.01 5.58 -0.20
2. Mar 31, 2017 4.92% -0.04% 4.91 1.95 -3.10
3. Apr 30, 2017 4.33% 0.91% 2.64 0.20 -0.73
4. May 31, 2017 7.52% 1.16% 23.21 0.04 -0.96
5. Jun 30, 2017 -2.67% 0.48% 28.95 0.77 4.72
6. Jul 31, 2017 2.05% 1.93% 0.44 0.33 -0.38
7. Aug 31, 2017 -0.73% 0.05% 11.80 1.70 4.48
8. Sep 30, 2017 -1.96% 1.93% 21.75 0.33 -2.67
9. Oct 31, 2017 14.96% 2.22% 150.09 0.74 10.55
10. Nov 30, 2017 6.48% 2.81% 14.23 2.10 5.47
11. Dec 31, 2017 -0.63% 0.98% 11.12 0.14 1.25
12. Jan 31, 2018 24.06% 5.62% 456.14 18.15 90.98
13. Feb 28, 2018 4.25% -3.89% 2.37 27.59 -8.09
14. Mar 31, 2018 -4.30% -2.69% 49.06 16.37 28.34
15. Apr 30, 2018 8.21% 0.27% 30.27 1.18 -5.97
16. May 31, 2018 4.05% 2.16% 1.80 0.64 1.08
17. Jun 30, 2018 4.31% 0.48% 2.57 0.76 -1.40
18. Jul 31, 2018 4.57% 3.60% 3.46 5.04 4.17
19. Aug 31, 2018 13.24% 3.03% 111.05 2.78 17.58
20. Sep 30, 2018 -0.49% 0.43% 10.20 0.86 2.96
21. Oct 31, 2018 -20.22% -6.94% 525.59 68.86 190.24
22. Nov 30, 2018 5.77% 1.79% 9.39 0.18 1.31
23. Dec 31, 2018 -11.13% -9.18% 191.57 111.00 145.82
24. Jan 31, 2019 14.43% 7.87% 137.54 42.39 76.36
25. Feb 28, 2019 -4.60% 2.97% 53.32 2.61 -11.79
26. Mar 31, 2019 8.60% 1.79% 34.72 0.19 2.56
27. Apr 30, 2019 8.19% 3.93% 30.04 6.62 14.11
28. May 31, 2019 -7.87% -6.58% 111.83 62.97 83.92
29. Jun 30, 2019 6.68% 6.89% 15.80 30.64 22.01
30. Jul 31, 2019 -1.42% 1.31% 16.99 0.00 0.19
31. Aug 31, 2019 -4.85% -1.81% 57.14 10.03 23.94
32. Sep 30, 2019 -2.26% 1.72% 24.70 0.13 -1.79
33. Oct 31, 2019 2.34% 2.04% 0.14 0.47 -0.25
34. Nov 30, 2019 1.36% 3.40% 1.81 4.19 -2.75
35. Dec 31, 2019 2.61% 2.86% 0.01 2.25 -0.14
36. Jan 31, 2020 8.71% -0.16% 36.08 2.31 -9.13
37. Feb 29, 2020 -6.22% -8.41% 79.72 95.43 87.22
38. Mar 31, 2020 3.50% -12.51% 0.64 192.37 -11.06
39. Apr 30, 2020 26.88% 12.68% 584.61 128.29 273.86
40. May 31, 2020 -1.28% 4.53% 15.87 10.05 -12.63
41. Jun 30, 2020 12.95% 1.84% 105.03 0.23 4.93
42. Jul 31, 2020 14.71% 5.51% 144.08 17.24 49.84
43. Aug 31, 2020 9.05% 7.01% 40.25 31.91 35.83
44. Sep 30, 2020 -8.76% -3.92% 131.40 27.89 60.53
45. Oct 31, 2020 -3.58% -2.77% 39.47 17.01 25.91
46. Nov 30, 2020 4.34% 10.75% 2.67 88.30 15.36
47. Dec 31, 2020 2.81% 3.71% 0.01 5.54 0.24
48. Jan 31, 2021 -1.56% -1.11% 18.20 6.11 10.54
49. Feb 28, 2021 -3.53% 2.61% 38.90 1.57 -7.80
50. Mar 31, 2021 0.03% 4.24% 7.15 8.33 -7.72
51. Apr 30, 2021 12.07% 5.24% 87.65 15.09 36.37
52. May 31, 2021 -7.05% 0.55% 95.15 0.65 7.89
53. Jun 30, 2021 6.74% 2.22% 16.26 0.75 3.48
54. Jul 31, 2021 -3.27% 2.27% 35.75 0.84 -5.48
55. Aug 31, 2021 4.30% 2.90% 2.55 2.38 2.46
56. Sep 30, 2021 -5.35% -4.76% 64.95 37.39 49.28
57. Oct 31, 2021 2.66% 6.91% 0.00 30.87 -0.25
58. Nov 30, 2021 3.99% -0.83% 1.65 4.80 -2.82
59. Dec 31, 2021 -4.92% 4.36% 58.18 9.02 -22.91
Total (Σ): 3,752.88 1,164.17 1,275.76

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VarianceAMZN = Σ(RAMZN,tRAMZN)2 ÷ (59 – 1)
= 3,752.88 ÷ (59 – 1)
= 64.70

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= 1,164.17 ÷ (59 – 1)
= 20.07

CovarianceAMZN, S&P 500 = Σ(RAMZN,tRAMZN)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= 1,275.76 ÷ (59 – 1)
= 22.00


Systematic Risk (β) Estimation

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VarianceAMZN 64.70
VarianceS&P 500 20.07
CovarianceAMZN, S&P 500 22.00
Correlation coefficientAMZN, S&P 5001 0.61
βAMZN2 1.10
αAMZN3 1.22%

Calculations

1 Correlation coefficientAMZN, S&P 500
= CovarianceAMZN, S&P 500 ÷ (Standard deviationAMZN × Standard deviationS&P 500)
= 22.00 ÷ (8.04% × 4.48%)
= 0.61

2 βAMZN
= CovarianceAMZN, S&P 500 ÷ VarianceS&P 500
= 22.00 ÷ 20.07
= 1.10

3 αAMZN
= AverageAMZN – βAMZN × AverageS&P 500
= 2.71%1.10 × 1.36%
= 1.22%


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 3.16%
Expected rate of return on market portfolio2 E(RM) 12.24%
Systematic risk (β) of Amazon.com Inc. common stock βAMZN 1.10
 
Expected rate of return on Amazon.com Inc. common stock3 E(RAMZN) 13.11%

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).

2 See details »

3 E(RAMZN) = RF + βAMZN [E(RM) – RF]
= 3.16% + 1.10 [12.24%3.16%]
= 13.11%