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Capital Asset Pricing Model (CAPM)

Difficulty: Intermediate


Rates of Return

Costco Wholesale Corp., monthly rates of return

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

 
VarianceCOST
VarianceS&P 500
CovarianceCOST, S&P 500
Correlation CoefficientCOST, S&P 5001
βCOST2
αCOST3

Calculations

1 CovarianceCOST, S&P 500 ÷ (Standard DeviationCOST × Standard DeviationS&P 500)
= ÷ ( × )

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

3 AverageCOST – βCOST × 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 Costco's common stock βCOST
Expected rate of return on Costco's common stock3 E(RCOST) %

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(RCOST) = RF + βCOST [E(RM) – RF]
= % + [% – %]
= %

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