Stock Analysis on Net

Cisco Systems Inc. (NASDAQ:CSCO)

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.


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, 2018 $47.77 2,901.52
1. Sep 30, 2018 $48.65 1.84% 2,913.98 0.43%
2. Oct 31, 2018 $45.75 $0.33 -5.28% 2,711.74 -6.94%
3. Nov 30, 2018 $47.87 4.63% 2,760.17 1.79%
. . . . . . .
. . . . . . .
. . . . . . .
70. Jun 30, 2024 $47.51 2.17% 5,460.48 3.47%
71. Jul 31, 2024 $48.45 $0.40 2.82% 5,522.30 1.13%
Average (R): 0.54% 1.05%
Standard deviation: 7.35% 5.24%
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, 2018 $47.77 2,901.52
1. Sep 30, 2018 $48.65 1.84% 2,913.98 0.43%
2. Oct 31, 2018 $45.75 $0.33 -5.28% 2,711.74 -6.94%
3. Nov 30, 2018 $47.87 4.63% 2,760.17 1.79%
4. Dec 31, 2018 $43.33 -9.48% 2,506.85 -9.18%
5. Jan 31, 2019 $47.29 $0.33 9.90% 2,704.10 7.87%
6. Feb 28, 2019 $51.77 9.47% 2,784.49 2.97%
7. Mar 31, 2019 $53.99 4.29% 2,834.40 1.79%
8. Apr 30, 2019 $55.95 $0.35 4.28% 2,945.83 3.93%
9. May 31, 2019 $52.03 -7.01% 2,752.06 -6.58%
10. Jun 30, 2019 $54.73 5.19% 2,941.76 6.89%
11. Jul 31, 2019 $55.40 $0.35 1.86% 2,980.38 1.31%
12. Aug 31, 2019 $46.81 -15.51% 2,926.46 -1.81%
13. Sep 30, 2019 $49.41 5.55% 2,976.74 1.72%
14. Oct 31, 2019 $47.51 $0.35 -3.14% 3,037.56 2.04%
15. Nov 30, 2019 $45.31 -4.63% 3,140.98 3.40%
16. Dec 31, 2019 $47.96 5.85% 3,230.78 2.86%
17. Jan 31, 2020 $45.97 $0.35 -3.42% 3,225.52 -0.16%
18. Feb 29, 2020 $39.93 -13.14% 2,954.22 -8.41%
19. Mar 31, 2020 $39.31 -1.55% 2,584.59 -12.51%
20. Apr 30, 2020 $42.38 $0.36 8.73% 2,912.43 12.68%
21. May 31, 2020 $47.82 12.84% 3,044.31 4.53%
22. Jun 30, 2020 $46.64 -2.47% 3,100.29 1.84%
23. Jul 31, 2020 $47.10 $0.36 1.76% 3,271.12 5.51%
24. Aug 31, 2020 $42.22 -10.36% 3,500.31 7.01%
25. Sep 30, 2020 $39.39 -6.70% 3,363.00 -3.92%
26. Oct 31, 2020 $35.90 $0.36 -7.95% 3,269.96 -2.77%
27. Nov 30, 2020 $43.02 19.83% 3,621.63 10.75%
28. Dec 31, 2020 $44.75 4.02% 3,756.07 3.71%
29. Jan 31, 2021 $44.58 $0.36 0.42% 3,714.24 -1.11%
30. Feb 28, 2021 $44.87 0.65% 3,811.15 2.61%
31. Mar 31, 2021 $51.71 15.24% 3,972.89 4.24%
32. Apr 30, 2021 $50.91 $0.37 -0.83% 4,181.17 5.24%
33. May 31, 2021 $52.90 3.91% 4,204.11 0.55%
34. Jun 30, 2021 $53.00 0.19% 4,297.50 2.22%
35. Jul 31, 2021 $55.37 $0.37 5.17% 4,395.26 2.27%
36. Aug 31, 2021 $59.02 6.59% 4,522.68 2.90%
37. Sep 30, 2021 $54.43 -7.78% 4,307.54 -4.76%
38. Oct 31, 2021 $55.97 $0.37 3.51% 4,605.38 6.91%
39. Nov 30, 2021 $54.84 -2.02% 4,567.00 -0.83%
40. Dec 31, 2021 $63.37 15.55% 4,766.18 4.36%
41. Jan 31, 2022 $55.67 $0.37 -11.57% 4,515.55 -5.26%
42. Feb 28, 2022 $55.77 0.18% 4,373.94 -3.14%
43. Mar 31, 2022 $55.76 -0.02% 4,530.41 3.58%
44. Apr 30, 2022 $48.98 $0.38 -11.48% 4,131.93 -8.80%
45. May 31, 2022 $45.05 -8.02% 4,132.15 0.01%
46. Jun 30, 2022 $42.64 -5.35% 3,785.38 -8.39%
47. Jul 31, 2022 $45.37 $0.38 7.29% 4,130.29 9.11%
48. Aug 31, 2022 $44.72 -1.43% 3,955.00 -4.24%
49. Sep 30, 2022 $40.00 -10.55% 3,585.62 -9.34%
50. Oct 31, 2022 $45.43 $0.38 14.53% 3,871.98 7.99%
51. Nov 30, 2022 $49.72 9.44% 4,080.11 5.38%
52. Dec 31, 2022 $47.64 -4.18% 3,839.50 -5.90%
53. Jan 31, 2023 $48.67 $0.38 2.96% 4,076.60 6.18%
54. Feb 28, 2023 $48.42 -0.51% 3,970.15 -2.61%
55. Mar 31, 2023 $52.28 7.97% 4,109.31 3.51%
56. Apr 30, 2023 $47.25 $0.39 -8.88% 4,169.48 1.46%
57. May 31, 2023 $49.67 5.12% 4,179.83 0.25%
58. Jun 30, 2023 $51.74 4.17% 4,376.86 4.71%
59. Jul 31, 2023 $52.04 $0.39 1.33% 4,588.96 4.85%
60. Aug 31, 2023 $57.35 10.20% 4,507.66 -1.77%
61. Sep 30, 2023 $53.76 -6.26% 4,288.05 -4.87%
62. Oct 31, 2023 $52.13 $0.39 -2.31% 4,193.80 -2.20%
63. Nov 30, 2023 $48.38 -7.19% 4,567.80 8.92%
64. Dec 31, 2023 $50.52 4.42% 4,769.83 4.42%
65. Jan 31, 2024 $50.18 $0.39 0.10% 4,845.65 1.59%
66. Feb 29, 2024 $48.37 -3.61% 5,096.27 5.17%
67. Mar 31, 2024 $49.91 3.18% 5,254.35 3.10%
68. Apr 30, 2024 $46.98 $0.40 -5.07% 5,035.69 -4.16%
69. May 31, 2024 $46.50 -1.02% 5,277.51 4.80%
70. Jun 30, 2024 $47.51 2.17% 5,460.48 3.47%
71. Jul 31, 2024 $48.45 $0.40 2.82% 5,522.30 1.13%
Average (R): 0.54% 1.05%
Standard deviation: 7.35% 5.24%

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, 2018 1.84% 0.43% 1.69 0.38 -0.80
2. Oct 31, 2018 -5.28% -6.94% 33.92 63.79 46.52
3. Nov 30, 2018 4.63% 1.79% 16.74 0.55 3.03
. . . . . . .
. . . . . . .
. . . . . . .
70. Jun 30, 2024 2.17% 3.47% 2.66 5.86 3.95
71. Jul 31, 2024 2.82% 1.13% 5.19 0.01 0.19
Total (Σ): 3,784.41 1,918.93 1,695.33
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, 2018 1.84% 0.43% 1.69 0.38 -0.80
2. Oct 31, 2018 -5.28% -6.94% 33.92 63.79 46.52
3. Nov 30, 2018 4.63% 1.79% 16.74 0.55 3.03
4. Dec 31, 2018 -9.48% -9.18% 100.52 104.54 102.51
5. Jan 31, 2019 9.90% 7.87% 87.59 46.54 63.84
6. Feb 28, 2019 9.47% 2.97% 79.77 3.71 17.20
7. Mar 31, 2019 4.29% 1.79% 14.04 0.56 2.79
8. Apr 30, 2019 4.28% 3.93% 13.96 8.32 10.78
9. May 31, 2019 -7.01% -6.58% 56.97 58.13 57.55
10. Jun 30, 2019 5.19% 6.89% 21.60 34.18 27.17
11. Jul 31, 2019 1.86% 1.31% 1.75 0.07 0.35
12. Aug 31, 2019 -15.51% -1.81% 257.51 8.16 45.83
13. Sep 30, 2019 5.55% 1.72% 25.13 0.45 3.37
14. Oct 31, 2019 -3.14% 2.04% 13.53 0.99 -3.67
15. Nov 30, 2019 -4.63% 3.40% 26.75 5.56 -12.20
16. Dec 31, 2019 5.85% 2.86% 28.16 3.28 9.62
17. Jan 31, 2020 -3.42% -0.16% 15.69 1.46 4.79
18. Feb 29, 2020 -13.14% -8.41% 187.17 89.45 129.39
19. Mar 31, 2020 -1.55% -12.51% 4.39 183.84 28.40
20. Apr 30, 2020 8.73% 12.68% 66.97 135.44 95.24
21. May 31, 2020 12.84% 4.53% 151.15 12.12 42.80
22. Jun 30, 2020 -2.47% 1.84% 9.06 0.63 -2.38
23. Jul 31, 2020 1.76% 5.51% 1.48 19.92 5.43
24. Aug 31, 2020 -10.36% 7.01% 118.87 35.52 -64.98
25. Sep 30, 2020 -6.70% -3.92% 52.49 24.70 36.00
26. Oct 31, 2020 -7.95% -2.77% 72.05 14.54 32.37
27. Nov 30, 2020 19.83% 10.75% 372.14 94.24 187.28
28. Dec 31, 2020 4.02% 3.71% 12.11 7.10 9.27
29. Jan 31, 2021 0.42% -1.11% 0.01 4.67 0.25
30. Feb 28, 2021 0.65% 2.61% 0.01 2.44 0.17
31. Mar 31, 2021 15.24% 4.24% 216.15 10.22 47.01
32. Apr 30, 2021 -0.83% 5.24% 1.89 17.61 -5.76
33. May 31, 2021 3.91% 0.55% 11.34 0.25 -1.68
34. Jun 30, 2021 0.19% 2.22% 0.12 1.38 -0.41
35. Jul 31, 2021 5.17% 2.27% 21.42 1.51 5.68
36. Aug 31, 2021 6.59% 2.90% 36.60 3.43 11.21
37. Sep 30, 2021 -7.78% -4.76% 69.20 33.68 48.28
38. Oct 31, 2021 3.51% 6.91% 8.80 34.43 17.41
39. Nov 30, 2021 -2.02% -0.83% 6.56 3.53 4.81
40. Dec 31, 2021 15.55% 4.36% 225.37 10.99 49.76
41. Jan 31, 2022 -11.57% -5.26% 146.62 39.76 76.35
42. Feb 28, 2022 0.18% -3.14% 0.13 17.50 1.52
43. Mar 31, 2022 -0.02% 3.58% 0.31 6.40 -1.42
44. Apr 30, 2022 -11.48% -8.80% 144.47 96.87 118.30
45. May 31, 2022 -8.02% 0.01% 73.37 1.08 8.92
46. Jun 30, 2022 -5.35% -8.39% 34.71 89.09 55.61
47. Jul 31, 2022 7.29% 9.11% 45.59 65.04 54.45
48. Aug 31, 2022 -1.43% -4.24% 3.90 27.99 10.45
49. Sep 30, 2022 -10.55% -9.34% 123.13 107.87 115.25
50. Oct 31, 2022 14.53% 7.99% 195.53 48.16 97.04
51. Nov 30, 2022 9.44% 5.38% 79.23 18.74 38.53
52. Dec 31, 2022 -4.18% -5.90% 22.33 48.22 32.81
53. Jan 31, 2023 2.96% 6.18% 5.85 26.30 12.40
54. Feb 28, 2023 -0.51% -2.61% 1.11 13.38 3.86
55. Mar 31, 2023 7.97% 3.51% 55.21 6.04 18.27
56. Apr 30, 2023 -8.88% 1.46% 88.68 0.17 -3.93
57. May 31, 2023 5.12% 0.25% 20.97 0.64 -3.66
58. Jun 30, 2023 4.17% 4.71% 13.15 13.45 13.30
59. Jul 31, 2023 1.33% 4.85% 0.63 14.43 3.01
60. Aug 31, 2023 10.20% -1.77% 93.35 7.94 -27.23
61. Sep 30, 2023 -6.26% -4.87% 46.26 35.03 40.26
62. Oct 31, 2023 -2.31% -2.20% 8.11 10.53 9.24
63. Nov 30, 2023 -7.19% 8.92% 59.84 61.96 -60.89
64. Dec 31, 2023 4.42% 4.42% 15.07 11.40 13.10
65. Jan 31, 2024 0.10% 1.59% 0.20 0.29 -0.24
66. Feb 29, 2024 -3.61% 5.17% 17.21 17.02 -17.12
67. Mar 31, 2024 3.18% 3.10% 6.98 4.22 5.43
68. Apr 30, 2024 -5.07% -4.16% 31.48 27.13 29.22
69. May 31, 2024 -1.02% 4.80% 2.44 14.10 -5.87
70. Jun 30, 2024 2.17% 3.47% 2.66 5.86 3.95
71. Jul 31, 2024 2.82% 1.13% 5.19 0.01 0.19
Total (Σ): 3,784.41 1,918.93 1,695.33

Show all

VarianceCSCO = Σ(RCSCO,tRCSCO)2 ÷ (71 – 1)
= 3,784.41 ÷ (71 – 1)
= 54.06

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (71 – 1)
= 1,918.93 ÷ (71 – 1)
= 27.41

CovarianceCSCO, S&P 500 = Σ(RCSCO,tRCSCO)×(RS&P 500,tRS&P 500) ÷ (71 – 1)
= 1,695.33 ÷ (71 – 1)
= 24.22


Systematic Risk (β) Estimation

Microsoft Excel
VarianceCSCO 54.06
VarianceS&P 500 27.41
CovarianceCSCO, S&P 500 24.22
Correlation coefficientCSCO, S&P 5001 0.63
βCSCO2 0.88
αCSCO3 -0.38%

Calculations

1 Correlation coefficientCSCO, S&P 500
= CovarianceCSCO, S&P 500 ÷ (Standard deviationCSCO × Standard deviationS&P 500)
= 24.22 ÷ (7.35% × 5.24%)
= 0.63

2 βCSCO
= CovarianceCSCO, S&P 500 ÷ VarianceS&P 500
= 24.22 ÷ 27.41
= 0.88

3 αCSCO
= AverageCSCO – βCSCO × AverageS&P 500
= 0.54%0.88 × 1.05%
= -0.38%


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.55%
Expected rate of return on market portfolio2 E(RM) 13.83%
Systematic risk (β) of Cisco Systems Inc. common stock βCSCO 0.88
 
Expected rate of return on Cisco Systems Inc. common stock3 E(RCSCO) 12.75%

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]
= 4.55% + 0.88 [13.83%4.55%]
= 12.75%