Stock Analysis on Net

Microsoft Corp. (NASDAQ:MSFT)

Capital Asset Pricing Model (CAPM)

Microsoft Excel

Rates of Return

Microsoft Corp., monthly rates of return

Microsoft Excel
Microsoft Corp. (MSFT) Standard & Poor’s 500 (S&P 500)
t Date PriceMSFT,t1 DividendMSFT,t1 RMSFT,t2 PriceS&P 500,t RS&P 500,t3
Jul 31, 2016 $56.68 2,173.60
1. Aug 31, 2016 $57.46 $0.36 2.01% 2,170.95 -0.12%
2. Sep 30, 2016 $57.60 0.24% 2,168.27 -0.12%
3. Oct 31, 2016 $59.92 4.03% 2,126.15 -1.94%
. . . . . . .
. . . . . . .
. . . . . . .
70. May 31, 2022 $271.87 $0.62 -1.81% 4,132.15 0.01%
71. Jun 30, 2022 $256.83 -5.53% 3,785.38 -8.39%
Average (R): 2.42% 0.89%
Standard deviation: 5.38% 4.53%
Microsoft Corp. (MSFT) Standard & Poor’s 500 (S&P 500)
t Date PriceMSFT,t1 DividendMSFT,t1 RMSFT,t2 PriceS&P 500,t RS&P 500,t3
Jul 31, 2016 $56.68 2,173.60
1. Aug 31, 2016 $57.46 $0.36 2.01% 2,170.95 -0.12%
2. Sep 30, 2016 $57.60 0.24% 2,168.27 -0.12%
3. Oct 31, 2016 $59.92 4.03% 2,126.15 -1.94%
4. Nov 30, 2016 $60.26 $0.39 1.22% 2,198.81 3.42%
5. Dec 31, 2016 $62.14 3.12% 2,238.83 1.82%
6. Jan 31, 2017 $64.65 4.04% 2,278.87 1.79%
7. Feb 28, 2017 $63.98 $0.39 -0.43% 2,363.64 3.72%
8. Mar 31, 2017 $65.86 2.94% 2,362.72 -0.04%
9. Apr 30, 2017 $68.46 3.95% 2,384.20 0.91%
10. May 31, 2017 $69.84 $0.39 2.59% 2,411.80 1.16%
11. Jun 30, 2017 $68.93 -1.30% 2,423.41 0.48%
12. Jul 31, 2017 $72.70 5.47% 2,470.30 1.93%
13. Aug 31, 2017 $74.77 $0.39 3.38% 2,471.65 0.05%
14. Sep 30, 2017 $74.49 -0.37% 2,519.36 1.93%
15. Oct 31, 2017 $83.18 11.67% 2,575.26 2.22%
16. Nov 30, 2017 $84.17 $0.42 1.70% 2,647.58 2.81%
17. Dec 31, 2017 $85.54 1.63% 2,673.61 0.98%
18. Jan 31, 2018 $95.01 11.07% 2,823.81 5.62%
19. Feb 28, 2018 $93.77 $0.42 -0.86% 2,713.83 -3.89%
20. Mar 31, 2018 $91.27 -2.67% 2,640.87 -2.69%
21. Apr 30, 2018 $93.52 2.47% 2,648.05 0.27%
22. May 31, 2018 $98.84 $0.42 6.14% 2,705.27 2.16%
23. Jun 30, 2018 $98.61 -0.23% 2,718.37 0.48%
24. Jul 31, 2018 $106.08 7.58% 2,816.29 3.60%
25. Aug 31, 2018 $112.33 $0.42 6.29% 2,901.52 3.03%
26. Sep 30, 2018 $114.37 1.82% 2,913.98 0.43%
27. Oct 31, 2018 $106.81 -6.61% 2,711.74 -6.94%
28. Nov 30, 2018 $110.89 $0.46 4.25% 2,760.17 1.79%
29. Dec 31, 2018 $101.57 -8.40% 2,506.85 -9.18%
30. Jan 31, 2019 $104.43 2.82% 2,704.10 7.87%
31. Feb 28, 2019 $112.03 $0.46 7.72% 2,784.49 2.97%
32. Mar 31, 2019 $117.94 5.28% 2,834.40 1.79%
33. Apr 30, 2019 $130.60 10.73% 2,945.83 3.93%
34. May 31, 2019 $123.68 $0.46 -4.95% 2,752.06 -6.58%
35. Jun 30, 2019 $133.96 8.31% 2,941.76 6.89%
36. Jul 31, 2019 $136.27 1.72% 2,980.38 1.31%
37. Aug 31, 2019 $137.86 $0.46 1.50% 2,926.46 -1.81%
38. Sep 30, 2019 $139.03 0.85% 2,976.74 1.72%
39. Oct 31, 2019 $143.37 3.12% 3,037.56 2.04%
40. Nov 30, 2019 $151.38 $0.51 5.94% 3,140.98 3.40%
41. Dec 31, 2019 $157.70 4.17% 3,230.78 2.86%
42. Jan 31, 2020 $170.23 7.95% 3,225.52 -0.16%
43. Feb 29, 2020 $162.01 $0.51 -4.53% 2,954.22 -8.41%
44. Mar 31, 2020 $157.71 -2.65% 2,584.59 -12.51%
45. Apr 30, 2020 $179.21 13.63% 2,912.43 12.68%
46. May 31, 2020 $183.25 $0.51 2.54% 3,044.31 4.53%
47. Jun 30, 2020 $203.51 11.06% 3,100.29 1.84%
48. Jul 31, 2020 $205.01 0.74% 3,271.12 5.51%
49. Aug 31, 2020 $225.53 $0.51 10.26% 3,500.31 7.01%
50. Sep 30, 2020 $210.33 -6.74% 3,363.00 -3.92%
51. Oct 31, 2020 $202.47 -3.74% 3,269.96 -2.77%
52. Nov 30, 2020 $214.07 $0.56 6.01% 3,621.63 10.75%
53. Dec 31, 2020 $222.42 3.90% 3,756.07 3.71%
54. Jan 31, 2021 $231.96 4.29% 3,714.24 -1.11%
55. Feb 28, 2021 $232.38 $0.56 0.42% 3,811.15 2.61%
56. Mar 31, 2021 $235.77 1.46% 3,972.89 4.24%
57. Apr 30, 2021 $252.18 6.96% 4,181.17 5.24%
58. May 31, 2021 $249.68 $0.56 -0.77% 4,204.11 0.55%
59. Jun 30, 2021 $270.90 8.50% 4,297.50 2.22%
60. Jul 31, 2021 $284.91 5.17% 4,395.26 2.27%
61. Aug 31, 2021 $301.88 $0.56 6.15% 4,522.68 2.90%
62. Sep 30, 2021 $281.92 -6.61% 4,307.54 -4.76%
63. Oct 31, 2021 $331.62 17.63% 4,605.38 6.91%
64. Nov 30, 2021 $330.59 $0.62 -0.12% 4,567.00 -0.83%
65. Dec 31, 2021 $336.32 1.73% 4,766.18 4.36%
66. Jan 31, 2022 $310.98 -7.53% 4,515.55 -5.26%
67. Feb 28, 2022 $298.79 $0.62 -3.72% 4,373.94 -3.14%
68. Mar 31, 2022 $308.31 3.19% 4,530.41 3.58%
69. Apr 30, 2022 $277.52 -9.99% 4,131.93 -8.80%
70. May 31, 2022 $271.87 $0.62 -1.81% 4,132.15 0.01%
71. Jun 30, 2022 $256.83 -5.53% 3,785.38 -8.39%
Average (R): 2.42% 0.89%
Standard deviation: 5.38% 4.53%

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 MSFT during period t

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


Variance and Covariance

Microsoft Corp., calculation of variance and covariance of returns

Microsoft Excel
t Date RMSFT,t RS&P 500,t (RMSFT,tRMSFT)2 (RS&P 500,tRS&P 500)2 (RMSFT,tRMSFT)×(RS&P 500,tRS&P 500)
1. Aug 31, 2016 2.01% -0.12% 0.17 1.02 0.41
2. Sep 30, 2016 0.24% -0.12% 4.73 1.02 2.20
3. Oct 31, 2016 4.03% -1.94% 2.59 8.00 -4.55
. . . . . . .
. . . . . . .
. . . . . . .
70. May 31, 2022 -1.81% 0.01% 17.90 0.78 3.73
71. Jun 30, 2022 -5.53% -8.39% 63.22 86.09 73.77
Total (Σ): 2,027.88 1,437.21 1,305.14
t Date RMSFT,t RS&P 500,t (RMSFT,tRMSFT)2 (RS&P 500,tRS&P 500)2 (RMSFT,tRMSFT)×(RS&P 500,tRS&P 500)
1. Aug 31, 2016 2.01% -0.12% 0.17 1.02 0.41
2. Sep 30, 2016 0.24% -0.12% 4.73 1.02 2.20
3. Oct 31, 2016 4.03% -1.94% 2.59 8.00 -4.55
4. Nov 30, 2016 1.22% 3.42% 1.44 6.40 -3.04
5. Dec 31, 2016 3.12% 1.82% 0.49 0.87 0.65
6. Jan 31, 2017 4.04% 1.79% 2.63 0.81 1.46
7. Feb 28, 2017 -0.43% 3.72% 8.13 8.03 -8.08
8. Mar 31, 2017 2.94% -0.04% 0.27 0.86 -0.48
9. Apr 30, 2017 3.95% 0.91% 2.34 0.00 0.03
10. May 31, 2017 2.59% 1.16% 0.03 0.07 0.05
11. Jun 30, 2017 -1.30% 0.48% 13.85 0.16 1.51
12. Jul 31, 2017 5.47% 1.93% 9.31 1.10 3.20
13. Aug 31, 2017 3.38% 0.05% 0.93 0.69 -0.80
14. Sep 30, 2017 -0.37% 1.93% 7.80 1.09 -2.92
15. Oct 31, 2017 11.67% 2.22% 85.51 1.77 12.32
16. Nov 30, 2017 1.70% 2.81% 0.52 3.69 -1.39
17. Dec 31, 2017 1.63% 0.98% 0.63 0.01 -0.08
18. Jan 31, 2018 11.07% 5.62% 74.86 22.38 40.93
19. Feb 28, 2018 -0.86% -3.89% 10.77 22.86 15.69
20. Mar 31, 2018 -2.67% -2.69% 25.86 12.78 18.18
21. Apr 30, 2018 2.47% 0.27% 0.00 0.38 -0.03
22. May 31, 2018 6.14% 2.16% 13.83 1.62 4.74
23. Jun 30, 2018 -0.23% 0.48% 7.03 0.16 1.07
24. Jul 31, 2018 7.58% 3.60% 26.59 7.37 14.00
25. Aug 31, 2018 6.29% 3.03% 14.97 4.58 8.28
26. Sep 30, 2018 1.82% 0.43% 0.36 0.21 0.28
27. Oct 31, 2018 -6.61% -6.94% 81.52 61.26 70.67
28. Nov 30, 2018 4.25% 1.79% 3.35 0.81 1.65
29. Dec 31, 2018 -8.40% -9.18% 117.15 101.29 108.93
30. Jan 31, 2019 2.82% 7.87% 0.16 48.74 2.77
31. Feb 28, 2019 7.72% 2.97% 28.08 4.35 11.06
32. Mar 31, 2019 5.28% 1.79% 8.16 0.82 2.59
33. Apr 30, 2019 10.73% 3.93% 69.15 9.27 25.32
34. May 31, 2019 -4.95% -6.58% 54.25 55.72 54.98
35. Jun 30, 2019 8.31% 6.89% 34.73 36.08 35.39
36. Jul 31, 2019 1.72% 1.31% 0.48 0.18 -0.30
37. Aug 31, 2019 1.50% -1.81% 0.84 7.27 2.47
38. Sep 30, 2019 0.85% 1.72% 2.47 0.69 -1.31
39. Oct 31, 2019 3.12% 2.04% 0.49 1.34 0.81
40. Nov 30, 2019 5.94% 3.40% 12.42 6.34 8.87
41. Dec 31, 2019 4.17% 2.86% 3.08 3.89 3.46
42. Jan 31, 2020 7.95% -0.16% 30.54 1.10 -5.80
43. Feb 29, 2020 -4.53% -8.41% 48.28 86.45 64.60
44. Mar 31, 2020 -2.65% -12.51% 25.74 179.52 67.97
45. Apr 30, 2020 13.63% 12.68% 125.75 139.19 132.30
46. May 31, 2020 2.54% 4.53% 0.01 13.26 0.44
47. Jun 30, 2020 11.06% 1.84% 74.60 0.91 8.22
48. Jul 31, 2020 0.74% 5.51% 2.83 21.38 -7.78
49. Aug 31, 2020 10.26% 7.01% 61.45 37.45 47.97
50. Sep 30, 2020 -6.74% -3.92% 83.88 23.13 44.05
51. Oct 31, 2020 -3.74% -2.77% 37.89 13.35 22.49
52. Nov 30, 2020 6.01% 10.75% 12.87 97.38 35.40
53. Dec 31, 2020 3.90% 3.71% 2.20 7.98 4.19
54. Jan 31, 2021 4.29% -1.11% 3.50 4.00 -3.74
55. Feb 28, 2021 0.42% 2.61% 3.99 2.97 -3.44
56. Mar 31, 2021 1.46% 4.24% 0.92 11.27 -3.22
57. Apr 30, 2021 6.96% 5.24% 20.62 18.97 19.78
58. May 31, 2021 -0.77% 0.55% 10.16 0.11 1.08
59. Jun 30, 2021 8.50% 2.22% 36.97 1.78 8.12
60. Jul 31, 2021 5.17% 2.27% 7.58 1.93 3.82
61. Aug 31, 2021 6.15% 2.90% 13.94 4.05 7.51
62. Sep 30, 2021 -6.61% -4.76% 81.56 31.85 50.97
63. Oct 31, 2021 17.63% 6.91% 231.35 36.33 91.68
64. Nov 30, 2021 -0.12% -0.83% 6.46 2.96 4.37
65. Dec 31, 2021 1.73% 4.36% 0.47 12.07 -2.38
66. Jan 31, 2022 -7.53% -5.26% 99.07 37.76 61.17
67. Feb 28, 2022 -3.72% -3.14% 37.69 16.18 24.70
68. Mar 31, 2022 3.19% 3.58% 0.59 7.24 2.06
69. Apr 30, 2022 -9.99% -8.80% 153.90 93.75 120.12
70. May 31, 2022 -1.81% 0.01% 17.90 0.78 3.73
71. Jun 30, 2022 -5.53% -8.39% 63.22 86.09 73.77
Total (Σ): 2,027.88 1,437.21 1,305.14

Show all

VarianceMSFT = Σ(RMSFT,tRMSFT)2 ÷ (71 – 1)
= 2,027.88 ÷ (71 – 1)
= 28.97

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (71 – 1)
= 1,437.21 ÷ (71 – 1)
= 20.53

CovarianceMSFT, S&P 500 = Σ(RMSFT,tRMSFT)×(RS&P 500,tRS&P 500) ÷ (71 – 1)
= 1,305.14 ÷ (71 – 1)
= 18.64


Systematic Risk (β) Estimation

Microsoft Excel
VarianceMSFT 28.97
VarianceS&P 500 20.53
CovarianceMSFT, S&P 500 18.64
Correlation coefficientMSFT, S&P 5001 0.76
βMSFT2 0.91
αMSFT3 1.61%

Calculations

1 Correlation coefficientMSFT, S&P 500
= CovarianceMSFT, S&P 500 ÷ (Standard deviationMSFT × Standard deviationS&P 500)
= 18.64 ÷ (5.38% × 4.53%)
= 0.76

2 βMSFT
= CovarianceMSFT, S&P 500 ÷ VarianceS&P 500
= 18.64 ÷ 20.53
= 0.91

3 αMSFT
= AverageMSFT – βMSFT × AverageS&P 500
= 2.42%0.91 × 0.89%
= 1.61%


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 3.81%
Expected rate of return on market portfolio2 E(RM) 12.52%
Systematic risk (β) of Microsoft Corp. common stock βMSFT 0.91
 
Expected rate of return on Microsoft Corp. common stock3 E(RMSFT) 11.72%

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(RMSFT) = RF + βMSFT [E(RM) – RF]
= 3.81% + 0.91 [12.52%3.81%]
= 11.72%