Stock Analysis on Net

Cisco Systems Inc. (NASDAQ:CSCO)

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Capital Asset Pricing Model (CAPM)

Microsoft Excel

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

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Rates of Return

Cisco Systems Inc., monthly rates of return

Microsoft Excel
Cisco Systems Inc. (CSCO) Standard & Poor’s 500 (S&P 500)
t Date PriceCSCO,t1 DividendCSCO,t1 RCSCO,t2 PriceS&P 500,t RS&P 500,t3
Aug 31, 2017
1. Sep 30, 2017
2. Oct 31, 2017
3. Nov 30, 2017
. . . . . . .
. . . . . . .
. . . . . . .
70. Jun 30, 2023
71. Jul 31, 2023
Average (R):
Standard deviation:
Cisco Systems Inc. (CSCO) Standard & Poor’s 500 (S&P 500)
t Date PriceCSCO,t1 DividendCSCO,t1 RCSCO,t2 PriceS&P 500,t RS&P 500,t3
Aug 31, 2017
1. Sep 30, 2017
2. Oct 31, 2017
3. Nov 30, 2017
4. Dec 31, 2017
5. Jan 31, 2018
6. Feb 28, 2018
7. Mar 31, 2018
8. Apr 30, 2018
9. May 31, 2018
10. Jun 30, 2018
11. Jul 31, 2018
12. Aug 31, 2018
13. Sep 30, 2018
14. Oct 31, 2018
15. Nov 30, 2018
16. Dec 31, 2018
17. Jan 31, 2019
18. Feb 28, 2019
19. Mar 31, 2019
20. Apr 30, 2019
21. May 31, 2019
22. Jun 30, 2019
23. Jul 31, 2019
24. Aug 31, 2019
25. Sep 30, 2019
26. Oct 31, 2019
27. Nov 30, 2019
28. Dec 31, 2019
29. Jan 31, 2020
30. Feb 29, 2020
31. Mar 31, 2020
32. Apr 30, 2020
33. May 31, 2020
34. Jun 30, 2020
35. Jul 31, 2020
36. Aug 31, 2020
37. Sep 30, 2020
38. Oct 31, 2020
39. Nov 30, 2020
40. Dec 31, 2020
41. Jan 31, 2021
42. Feb 28, 2021
43. Mar 31, 2021
44. Apr 30, 2021
45. May 31, 2021
46. Jun 30, 2021
47. Jul 31, 2021
48. Aug 31, 2021
49. Sep 30, 2021
50. Oct 31, 2021
51. Nov 30, 2021
52. Dec 31, 2021
53. Jan 31, 2022
54. Feb 28, 2022
55. Mar 31, 2022
56. Apr 30, 2022
57. May 31, 2022
58. Jun 30, 2022
59. Jul 31, 2022
60. Aug 31, 2022
61. Sep 30, 2022
62. Oct 31, 2022
63. Nov 30, 2022
64. Dec 31, 2022
65. Jan 31, 2023
66. Feb 28, 2023
67. Mar 31, 2023
68. Apr 30, 2023
69. May 31, 2023
70. Jun 30, 2023
71. Jul 31, 2023
Average (R):
Standard deviation:

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 CSCO during period t

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


Variance and Covariance

Cisco Systems Inc., calculation of variance and covariance of returns

Microsoft Excel
t Date RCSCO,t RS&P 500,t (RCSCO,tRCSCO)2 (RS&P 500,tRS&P 500)2 (RCSCO,tRCSCO)×(RS&P 500,tRS&P 500)
1. Sep 30, 2017
2. Oct 31, 2017
3. Nov 30, 2017
. . . . . . .
. . . . . . .
. . . . . . .
70. Jun 30, 2023
71. Jul 31, 2023
Total (Σ):
t Date RCSCO,t RS&P 500,t (RCSCO,tRCSCO)2 (RS&P 500,tRS&P 500)2 (RCSCO,tRCSCO)×(RS&P 500,tRS&P 500)
1. Sep 30, 2017
2. Oct 31, 2017
3. Nov 30, 2017
4. Dec 31, 2017
5. Jan 31, 2018
6. Feb 28, 2018
7. Mar 31, 2018
8. Apr 30, 2018
9. May 31, 2018
10. Jun 30, 2018
11. Jul 31, 2018
12. Aug 31, 2018
13. Sep 30, 2018
14. Oct 31, 2018
15. Nov 30, 2018
16. Dec 31, 2018
17. Jan 31, 2019
18. Feb 28, 2019
19. Mar 31, 2019
20. Apr 30, 2019
21. May 31, 2019
22. Jun 30, 2019
23. Jul 31, 2019
24. Aug 31, 2019
25. Sep 30, 2019
26. Oct 31, 2019
27. Nov 30, 2019
28. Dec 31, 2019
29. Jan 31, 2020
30. Feb 29, 2020
31. Mar 31, 2020
32. Apr 30, 2020
33. May 31, 2020
34. Jun 30, 2020
35. Jul 31, 2020
36. Aug 31, 2020
37. Sep 30, 2020
38. Oct 31, 2020
39. Nov 30, 2020
40. Dec 31, 2020
41. Jan 31, 2021
42. Feb 28, 2021
43. Mar 31, 2021
44. Apr 30, 2021
45. May 31, 2021
46. Jun 30, 2021
47. Jul 31, 2021
48. Aug 31, 2021
49. Sep 30, 2021
50. Oct 31, 2021
51. Nov 30, 2021
52. Dec 31, 2021
53. Jan 31, 2022
54. Feb 28, 2022
55. Mar 31, 2022
56. Apr 30, 2022
57. May 31, 2022
58. Jun 30, 2022
59. Jul 31, 2022
60. Aug 31, 2022
61. Sep 30, 2022
62. Oct 31, 2022
63. Nov 30, 2022
64. Dec 31, 2022
65. Jan 31, 2023
66. Feb 28, 2023
67. Mar 31, 2023
68. Apr 30, 2023
69. May 31, 2023
70. Jun 30, 2023
71. Jul 31, 2023
Total (Σ):

Show all

VarianceCSCO = Σ(RCSCO,tRCSCO)2 ÷ (71 – 1)
= ÷ (71 – 1)
=

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (71 – 1)
= ÷ (71 – 1)
=

CovarianceCSCO, S&P 500 = Σ(RCSCO,tRCSCO)×(RS&P 500,tRS&P 500) ÷ (71 – 1)
= ÷ (71 – 1)
=


Systematic Risk (β) Estimation

Microsoft Excel
VarianceCSCO
VarianceS&P 500
CovarianceCSCO, S&P 500
Correlation coefficientCSCO, S&P 5001
βCSCO2
αCSCO3

Calculations

1 Correlation coefficientCSCO, S&P 500
= CovarianceCSCO, S&P 500 ÷ (Standard deviationCSCO × Standard deviationS&P 500)
= ÷ ( × )
=

2 βCSCO
= CovarianceCSCO, S&P 500 ÷ VarianceS&P 500
= ÷
=

3 αCSCO
= AverageCSCO – βCSCO × AverageS&P 500
= ×
=


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF
Expected rate of return on market portfolio2 E(RM)
Systematic risk (β) of Cisco Systems Inc. common stock βCSCO
 
Expected rate of return on Cisco Systems Inc. common stock3 E(RCSCO)

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(RCSCO) = RF + βCSCO [E(RM) – RF]
= + []
=