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Capital Asset Pricing Model (CAPM)

Difficulty: Intermediate


Rates of Return

Applied Materials Inc., monthly rates of return

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

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 AMAT during period t

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

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Systematic Risk (β) Estimation

 
VarianceAMAT
VarianceS&P 500
CovarianceAMAT, S&P 500
Correlation CoefficientAMAT, S&P 5001
βAMAT2
αAMAT3

Calculations

1 CovarianceAMAT, S&P 500 ÷ (Standard DeviationAMAT × Standard DeviationS&P 500)
= ÷ ( × )

2 CovarianceAMAT, S&P 500 ÷ VarianceS&P 500
= ÷

3 AverageAMAT – βAMAT × AverageS&P 500
= ×

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Expected Rate of Return

 
Assumptions
Rate of return on LT Treasury Composite1 RF %
Expected rate of return on market portfolio2 E(RM) %
Systematic risk (β) of Applied's common stock βAMAT
Expected rate of return on Applied's common stock3 E(RAMAT) %

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(RAMAT) = RF + βAMAT [E(RM) – RF]
= % + [% – %]
= %

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