Microsoft Excel LibreOffice Calc

Gilead Sciences Inc. (GILD)


Capital Asset Pricing Model (CAPM)

Difficulty: Intermediate


Rates of Return

Gilead Sciences Inc., monthly rates of return

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Gilead Sciences Inc. (GILD) Standard & Poor’s 500 (S&P 500)
t Date PriceGILD,t1 DividendGILD,t1 RGILD,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 80.65 1,782.59
1. Feb 28, 2014 82.79 2.65% 1,859.45 4.31%
2. Mar 31, 2014 70.86 -14.41% 1,872.34 0.69%
3. Apr 30, 2014 78.49 10.77% 1,883.95 0.62%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2018 71.94 5.51% 2,760.17 1.79%
59. Dec 31, 2018 62.55 0.57 -12.26% 2,506.85 -9.18%
Average: 0.01% 0.63%
Standard deviation: 7.50% 3.13%
Gilead Sciences Inc. (GILD) Standard & Poor’s 500 (S&P 500)
t Date PriceGILD,t1 DividendGILD,t1 RGILD,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 80.65 1,782.59
1. Feb 28, 2014 82.79 2.65% 1,859.45 4.31%
2. Mar 31, 2014 70.86 -14.41% 1,872.34 0.69%
3. Apr 30, 2014 78.49 10.77% 1,883.95 0.62%
4. May 31, 2014 81.21 3.47% 1,923.57 2.10%
5. Jun 30, 2014 82.91 2.09% 1,960.23 1.91%
6. Jul 31, 2014 91.55 10.42% 1,930.67 -1.51%
7. Aug 31, 2014 107.56 17.49% 2,003.37 3.77%
8. Sep 30, 2014 106.45 -1.03% 1,972.29 -1.55%
9. Oct 31, 2014 112.00 5.21% 2,018.05 2.32%
10. Nov 30, 2014 100.32 -10.43% 2,067.56 2.45%
11. Dec 31, 2014 94.26 -6.04% 2,058.90 -0.42%
12. Jan 31, 2015 104.83 11.21% 1,994.99 -3.10%
13. Feb 28, 2015 103.53 -1.24% 2,104.50 5.49%
14. Mar 31, 2015 98.13 -5.22% 2,067.89 -1.74%
15. Apr 30, 2015 100.51 2.43% 2,085.51 0.85%
16. May 31, 2015 112.27 11.70% 2,107.39 1.05%
17. Jun 30, 2015 117.08 0.43 4.67% 2,063.11 -2.10%
18. Jul 31, 2015 117.86 0.67% 2,103.84 1.97%
19. Aug 31, 2015 105.07 -10.85% 1,972.18 -6.26%
20. Sep 30, 2015 98.19 0.43 -6.14% 1,920.03 -2.64%
21. Oct 31, 2015 108.13 10.12% 2,079.36 8.30%
22. Nov 30, 2015 105.96 -2.01% 2,080.41 0.05%
23. Dec 31, 2015 101.19 0.43 -4.10% 2,043.94 -1.75%
24. Jan 31, 2016 83.00 -17.98% 1,940.24 -5.07%
25. Feb 29, 2016 87.25 5.12% 1,932.23 -0.41%
26. Mar 31, 2016 91.86 0.43 5.78% 2,059.74 6.60%
27. Apr 30, 2016 88.21 -3.97% 2,065.30 0.27%
28. May 31, 2016 87.06 -1.30% 2,096.95 1.53%
29. Jun 30, 2016 83.42 0.47 -3.64% 2,098.86 0.09%
30. Jul 31, 2016 79.47 -4.74% 2,173.60 3.56%
31. Aug 31, 2016 78.38 -1.37% 2,170.95 -0.12%
32. Sep 30, 2016 79.12 0.47 1.54% 2,168.27 -0.12%
33. Oct 31, 2016 73.63 -6.94% 2,126.15 -1.94%
34. Nov 30, 2016 73.70 0.10% 2,198.81 3.42%
35. Dec 31, 2016 71.61 0.47 -2.20% 2,238.83 1.82%
36. Jan 31, 2017 72.45 1.17% 2,278.87 1.79%
37. Feb 28, 2017 70.48 -2.72% 2,363.64 3.72%
38. Mar 31, 2017 67.92 0.52 -2.89% 2,362.72 -0.04%
39. Apr 30, 2017 68.55 0.93% 2,384.20 0.91%
40. May 31, 2017 64.89 -5.34% 2,411.80 1.16%
41. Jun 30, 2017 70.78 0.52 9.88% 2,423.41 0.48%
42. Jul 31, 2017 76.09 7.50% 2,470.30 1.93%
43. Aug 31, 2017 83.71 10.01% 2,471.65 0.05%
44. Sep 30, 2017 81.02 0.52 -2.59% 2,519.36 1.93%
45. Oct 31, 2017 74.96 -7.48% 2,575.26 2.22%
46. Nov 30, 2017 74.78 -0.24% 2,647.58 2.81%
47. Dec 31, 2017 71.64 0.52 -3.50% 2,673.61 0.98%
48. Jan 31, 2018 83.80 16.97% 2,823.81 5.62%
49. Feb 28, 2018 78.73 -6.05% 2,713.83 -3.89%
50. Mar 31, 2018 75.39 0.57 -3.52% 2,640.87 -2.69%
51. Apr 30, 2018 72.23 -4.19% 2,648.05 0.27%
52. May 31, 2018 67.40 -6.69% 2,705.27 2.16%
53. Jun 30, 2018 70.84 0.57 5.95% 2,718.37 0.48%
54. Jul 31, 2018 77.83 9.87% 2,816.29 3.60%
55. Aug 31, 2018 75.73 -2.70% 2,901.52 3.03%
56. Sep 30, 2018 77.21 0.57 2.71% 2,913.98 0.43%
57. Oct 31, 2018 68.18 -11.70% 2,711.74 -6.94%
58. Nov 30, 2018 71.94 5.51% 2,760.17 1.79%
59. Dec 31, 2018 62.55 0.57 -12.26% 2,506.85 -9.18%
Average: 0.01% 0.63%
Standard deviation: 7.50% 3.13%

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 GILD during period t

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


Systematic Risk (β) Estimation

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VarianceGILD 56.31
VarianceS&P 500 9.77
CovarianceGILD, S&P 500 11.27
Correlation coefficientGILD, S&P 5001 0.48
βGILD2 1.15
αGILD3 -0.72

Calculations

1 Correlation coefficientGILD, S&P 500
= CovarianceGILD, S&P 500 ÷ (Standard deviationGILD × Standard deviationS&P 500)
= 11.27 ÷ (7.50 × 3.13)

2 βGILD
= CovarianceGILD, S&P 500 ÷ VarianceS&P 500
= 11.27 ÷ 9.77

3 αGILD
= AverageGILD – βGILD × AverageS&P 500
= 0.011.15 × 0.63


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.13%
Expected rate of return on market portfolio2 E(RM) 11.63%
Systematic risk (β) of Gilead Sciences Inc.’s common stock βGILD 1.15
 
Expected rate of return on Gilead Sciences Inc.’s common stock3 E(RGILD) 13.09%

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(RGILD) = RF + βGILD [E(RM) – RF]
= 2.13% + 1.15 [11.63%2.13%]
= 13.09%