Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Costco Wholesale Corp. (NASDAQ:COST)

Capital Asset Pricing Model (CAPM)

Intermediate level

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Costco Wholesale Corp.’s common stock.


Rates of Return

Costco Wholesale Corp., monthly rates of return

Microsoft Excel LibreOffice Calc
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, 2014 $125.32 1,972.29
1. Oct 31, 2014 $133.37 6.42% 2,018.05 2.32%
2. Nov 30, 2014 $142.12 $0.355 6.83% 2,067.56 2.45%
3. Dec 31, 2014 $141.75 -0.26% 2,058.90 -0.42%
. . . . . . .
. . . . . . .
. . . . . . .
70. Jul 31, 2020 $325.53 $0.70 7.59% 3,271.12 5.51%
71. Aug 31, 2020 $347.66 6.80% 3,500.31 7.01%
Average (R): 1.77% 0.90%
Standard deviation: 5.14% 4.12%
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, 2014 $125.32 1,972.29
1. Oct 31, 2014 $133.37 6.42% 2,018.05 2.32%
2. Nov 30, 2014 $142.12 $0.355 6.83% 2,067.56 2.45%
3. Dec 31, 2014 $141.75 -0.26% 2,058.90 -0.42%
4. Jan 31, 2015 $142.99 0.87% 1,994.99 -3.10%
5. Feb 28, 2015 $146.96 $5.355 6.52% 2,104.50 5.49%
6. Mar 31, 2015 $151.50 3.09% 2,067.89 -1.74%
7. Apr 30, 2015 $143.05 $0.40 -5.31% 2,085.51 0.85%
8. May 31, 2015 $142.59 -0.32% 2,107.39 1.05%
9. Jun 30, 2015 $135.06 -5.28% 2,063.11 -2.10%
10. Jul 31, 2015 $145.30 7.58% 2,103.84 1.97%
11. Aug 31, 2015 $140.05 $0.40 -3.34% 1,972.18 -6.26%
12. Sep 30, 2015 $144.57 3.23% 1,920.03 -2.64%
13. Oct 31, 2015 $158.12 9.37% 2,079.36 8.30%
14. Nov 30, 2015 $161.42 $0.40 2.34% 2,080.41 0.05%
15. Dec 31, 2015 $161.50 0.05% 2,043.94 -1.75%
16. Jan 31, 2016 $151.12 -6.43% 1,940.24 -5.07%
17. Feb 29, 2016 $150.03 $0.40 -0.46% 1,932.23 -0.41%
18. Mar 31, 2016 $157.58 5.03% 2,059.74 6.60%
19. Apr 30, 2016 $148.13 $0.45 -5.71% 2,065.30 0.27%
20. May 31, 2016 $148.77 0.43% 2,096.95 1.53%
21. Jun 30, 2016 $157.04 5.56% 2,098.86 0.09%
22. Jul 31, 2016 $167.22 6.48% 2,173.60 3.56%
23. Aug 31, 2016 $162.09 $0.45 -2.80% 2,170.95 -0.12%
24. Sep 30, 2016 $152.51 -5.91% 2,168.27 -0.12%
25. Oct 31, 2016 $147.87 -3.04% 2,126.15 -1.94%
26. Nov 30, 2016 $150.11 $0.45 1.82% 2,198.81 3.42%
27. Dec 31, 2016 $160.11 6.66% 2,238.83 1.82%
28. Jan 31, 2017 $163.95 2.40% 2,278.87 1.79%
29. Feb 28, 2017 $177.18 $0.45 8.34% 2,363.64 3.72%
30. Mar 31, 2017 $167.69 -5.36% 2,362.72 -0.04%
31. Apr 30, 2017 $177.52 5.86% 2,384.20 0.91%
32. May 31, 2017 $180.43 $7.50 5.86% 2,411.80 1.16%
33. Jun 30, 2017 $159.93 -11.36% 2,423.41 0.48%
34. Jul 31, 2017 $158.51 -0.89% 2,470.30 1.93%
35. Aug 31, 2017 $156.74 $0.50 -0.80% 2,471.65 0.05%
36. Sep 30, 2017 $164.29 4.82% 2,519.36 1.93%
37. Oct 31, 2017 $161.08 -1.95% 2,575.26 2.22%
38. Nov 30, 2017 $184.43 $0.50 14.81% 2,647.58 2.81%
39. Dec 31, 2017 $186.12 0.92% 2,673.61 0.98%
40. Jan 31, 2018 $194.87 4.70% 2,823.81 5.62%
41. Feb 28, 2018 $190.90 $0.50 -1.78% 2,713.83 -3.89%
42. Mar 31, 2018 $188.43 -1.29% 2,640.87 -2.69%
43. Apr 30, 2018 $197.16 4.63% 2,648.05 0.27%
44. May 31, 2018 $198.24 $0.57 0.84% 2,705.27 2.16%
45. Jun 30, 2018 $208.98 5.42% 2,718.37 0.48%
46. Jul 31, 2018 $218.71 4.66% 2,816.29 3.60%
47. Aug 31, 2018 $233.13 $0.57 6.85% 2,901.52 3.03%
48. Sep 30, 2018 $234.88 0.75% 2,913.98 0.43%
49. Oct 31, 2018 $228.63 -2.66% 2,711.74 -6.94%
50. Nov 30, 2018 $231.28 $0.57 1.41% 2,760.17 1.79%
51. Dec 31, 2018 $203.71 -11.92% 2,506.85 -9.18%
52. Jan 31, 2019 $214.63 5.36% 2,704.10 7.87%
53. Feb 28, 2019 $218.74 $0.57 2.18% 2,784.49 2.97%
54. Mar 31, 2019 $242.14 10.70% 2,834.40 1.79%
55. Apr 30, 2019 $245.53 1.40% 2,945.83 3.93%
56. May 31, 2019 $239.58 $0.65 -2.16% 2,752.06 -6.58%
57. Jun 30, 2019 $264.26 10.30% 2,941.76 6.89%
58. Jul 31, 2019 $275.63 4.30% 2,980.38 1.31%
59. Aug 31, 2019 $294.76 $0.65 7.18% 2,926.46 -1.81%
60. Sep 30, 2019 $288.11 -2.26% 2,976.74 1.72%
61. Oct 31, 2019 $297.11 $0.65 3.35% 3,037.56 2.04%
62. Nov 30, 2019 $299.81 0.91% 3,140.98 3.40%
63. Dec 31, 2019 $293.92 -1.96% 3,230.78 2.86%
64. Jan 31, 2020 $305.52 3.95% 3,225.52 -0.16%
65. Feb 29, 2020 $281.14 $0.65 -7.77% 2,954.22 -8.41%
66. Mar 31, 2020 $285.13 1.42% 2,584.59 -12.51%
67. Apr 30, 2020 $303.00 $0.70 6.51% 2,912.43 12.68%
68. May 31, 2020 $308.47 1.81% 3,044.31 4.53%
69. Jun 30, 2020 $303.21 -1.71% 3,100.29 1.84%
70. Jul 31, 2020 $325.53 $0.70 7.59% 3,271.12 5.51%
71. Aug 31, 2020 $347.66 6.80% 3,500.31 7.01%
Average (R): 1.77% 0.90%
Standard deviation: 5.14% 4.12%

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 COST during period t

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


Variance and Covariance

Costco Wholesale Corp., calculation of variance and covariance of returns

Microsoft Excel LibreOffice Calc
t Date RCOST,t RS&P 500,t (RCOST,tRCOST)2 (RS&P 500,tRS&P 500)2 (RCOST,tRCOST)×(RS&P 500,tRS&P 500)
1. Oct 31, 2014 6.42% 2.32% 21.67 2.03 6.63
2. Nov 30, 2014 6.83% 2.45% 25.58 2.43 7.88
3. Dec 31, 2014 -0.26% -0.42% 4.12 1.73 2.67
. . . . . . .
. . . . . . .
. . . . . . .
70. Jul 31, 2020 7.59% 5.51% 33.91 21.29 26.87
71. Aug 31, 2020 6.80% 7.01% 25.29 37.34 30.73
Total (Σ): 1,850.82 1,190.16 846.68
t Date RCOST,t RS&P 500,t (RCOST,tRCOST)2 (RS&P 500,tRS&P 500)2 (RCOST,tRCOST)×(RS&P 500,tRS&P 500)
1. Oct 31, 2014 6.42% 2.32% 21.67 2.03 6.63
2. Nov 30, 2014 6.83% 2.45% 25.58 2.43 7.88
3. Dec 31, 2014 -0.26% -0.42% 4.12 1.73 2.67
4. Jan 31, 2015 0.87% -3.10% 0.80 16.00 3.58
5. Feb 28, 2015 6.52% 5.49% 22.59 21.10 21.83
6. Mar 31, 2015 3.09% -1.74% 1.74 6.95 -3.48
7. Apr 30, 2015 -5.31% 0.85% 50.16 0.00 0.31
8. May 31, 2015 -0.32% 1.05% 4.37 0.02 -0.32
9. Jun 30, 2015 -5.28% -2.10% 49.70 8.98 21.13
10. Jul 31, 2015 7.58% 1.97% 33.79 1.16 6.27
11. Aug 31, 2015 -3.34% -6.26% 26.08 51.18 36.53
12. Sep 30, 2015 3.23% -2.64% 2.13 12.53 -5.16
13. Oct 31, 2015 9.37% 8.30% 57.82 54.80 56.29
14. Nov 30, 2015 2.34% 0.05% 0.33 0.71 -0.48
15. Dec 31, 2015 0.05% -1.75% 2.96 7.02 4.55
16. Jan 31, 2016 -6.43% -5.07% 67.17 35.63 48.92
17. Feb 29, 2016 -0.46% -0.41% 4.95 1.71 2.91
18. Mar 31, 2016 5.03% 6.60% 10.65 32.53 18.61
19. Apr 30, 2016 -5.71% 0.27% 55.95 0.39 4.68
20. May 31, 2016 0.43% 1.53% 1.79 0.41 -0.85
21. Jun 30, 2016 5.56% 0.09% 14.37 0.65 -3.05
22. Jul 31, 2016 6.48% 3.56% 22.22 7.10 12.56
23. Aug 31, 2016 -2.80% -0.12% 20.86 1.04 4.65
24. Sep 30, 2016 -5.91% -0.12% 58.97 1.04 7.83
25. Oct 31, 2016 -3.04% -1.94% 23.15 8.06 13.66
26. Nov 30, 2016 1.82% 3.42% 0.00 6.36 0.13
27. Dec 31, 2016 6.66% 1.82% 23.94 0.85 4.52
28. Jan 31, 2017 2.40% 1.79% 0.40 0.80 0.56
29. Feb 28, 2017 8.34% 3.72% 43.23 7.98 18.57
30. Mar 31, 2017 -5.36% -0.04% 50.76 0.87 6.66
31. Apr 30, 2017 5.86% 0.91% 16.75 0.00 0.05
32. May 31, 2017 5.86% 1.16% 16.77 0.07 1.07
33. Jun 30, 2017 -11.36% 0.48% 172.41 0.17 5.44
34. Jul 31, 2017 -0.89% 1.93% 7.06 1.08 -2.76
35. Aug 31, 2017 -0.80% 0.05% 6.60 0.71 2.16
36. Sep 30, 2017 4.82% 1.93% 9.29 1.07 3.15
37. Oct 31, 2017 -1.95% 2.22% 13.86 1.75 -4.93
38. Nov 30, 2017 14.81% 2.81% 169.98 3.66 24.93
39. Dec 31, 2017 0.92% 0.98% 0.73 0.01 -0.07
40. Jan 31, 2018 4.70% 5.62% 8.60 22.30 13.85
41. Feb 28, 2018 -1.78% -3.89% 12.60 22.95 17.00
42. Mar 31, 2018 -1.29% -2.69% 9.38 12.85 10.98
43. Apr 30, 2018 4.63% 0.27% 8.20 0.39 -1.79
44. May 31, 2018 0.84% 2.16% 0.87 1.60 -1.18
45. Jun 30, 2018 5.42% 0.48% 13.31 0.17 -1.50
46. Jul 31, 2018 4.66% 3.60% 8.34 7.32 7.81
47. Aug 31, 2018 6.85% 3.03% 25.86 4.54 10.83
48. Sep 30, 2018 0.75% 0.43% 1.04 0.22 0.47
49. Oct 31, 2018 -2.66% -6.94% 19.62 61.40 34.71
50. Nov 30, 2018 1.41% 1.79% 0.13 0.79 -0.32
51. Dec 31, 2018 -11.92% -9.18% 187.40 101.48 137.90
52. Jan 31, 2019 5.36% 7.87% 12.90 48.62 25.04
53. Feb 28, 2019 2.18% 2.97% 0.17 4.31 0.86
54. Mar 31, 2019 10.70% 1.79% 79.72 0.80 8.01
55. Apr 30, 2019 1.40% 3.93% 0.14 9.21 -1.12
56. May 31, 2019 -2.16% -6.58% 15.42 55.85 29.35
57. Jun 30, 2019 10.30% 6.89% 72.81 35.97 51.17
58. Jul 31, 2019 4.30% 1.31% 6.42 0.17 1.06
59. Aug 31, 2019 7.18% -1.81% 29.24 7.32 -14.63
60. Sep 30, 2019 -2.26% 1.72% 16.20 0.68 -3.31
61. Oct 31, 2019 3.35% 2.04% 2.50 1.32 1.81
62. Nov 30, 2019 0.91% 3.40% 0.74 6.29 -2.16
63. Dec 31, 2019 -1.96% 2.86% 13.94 3.85 -7.33
64. Jan 31, 2020 3.95% -0.16% 4.74 1.12 -2.31
65. Feb 29, 2020 -7.77% -8.41% 90.93 86.62 88.75
66. Mar 31, 2020 1.42% -12.51% 0.12 179.77 4.69
67. Apr 30, 2020 6.51% 12.68% 22.51 138.97 55.93
68. May 31, 2020 1.81% 4.53% 0.00 13.19 0.13
69. Jun 30, 2020 -1.71% 1.84% 12.07 0.89 -3.28
70. Jul 31, 2020 7.59% 5.51% 33.91 21.29 26.87
71. Aug 31, 2020 6.80% 7.01% 25.29 37.34 30.73
Total (Σ): 1,850.82 1,190.16 846.68

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VarianceCOST = Σ(RCOST,tRCOST)2 ÷ (71 – 1)
= 1,850.82 ÷ (71 – 1)
= 26.44

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (71 – 1)
= 1,190.16 ÷ (71 – 1)
= 17.00

CovarianceCOST, S&P 500 = Σ(RCOST,tRCOST)×(RS&P 500,tRS&P 500) ÷ (71 – 1)
= 846.68 ÷ (71 – 1)
= 12.10


Systematic Risk (β) Estimation

Microsoft Excel LibreOffice Calc
VarianceCOST 26.44
VarianceS&P 500 17.00
CovarianceCOST, S&P 500 12.10
Correlation coefficientCOST, S&P 5001 0.57
βCOST2 0.71
αCOST3 1.13%

Calculations

1 Correlation coefficientCOST, S&P 500
= CovarianceCOST, S&P 500 ÷ (Standard deviationCOST × Standard deviationS&P 500)
= 12.10 ÷ (5.14% × 4.12%)
= 0.57

2 βCOST
= CovarianceCOST, S&P 500 ÷ VarianceS&P 500
= 12.10 ÷ 17.00
= 0.71

3 αCOST
= AverageCOST – βCOST × AverageS&P 500
= 1.77%0.71 × 0.90%
= 1.13%


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF 1.80%
Expected rate of return on market portfolio2 E(RM) 11.71%
Systematic risk (β) of Costco Wholesale Corp.’s common stock βCOST 0.71
 
Expected rate of return on Costco Wholesale Corp.’s common stock3 E(RCOST) 8.85%

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(RCOST) = RF + βCOST [E(RM) – RF]
= 1.80% + 0.71 [11.71%1.80%]
= 8.85%