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, 2017 $72.70 2,470.30
1. Aug 31, 2017 $74.77 $0.39 3.38% 2,471.65 0.05%
2. Sep 30, 2017 $74.49 -0.37% 2,519.36 1.93%
3. Oct 31, 2017 $83.18 11.67% 2,575.26 2.22%
. . . . . . .
. . . . . . .
. . . . . . .
70. May 31, 2023 $328.39 $0.68 7.10% 4,179.83 0.25%
71. Jun 30, 2023 $340.54 3.70% 4,376.86 4.71%
Average (R): 2.49% 0.94%
Standard deviation: 6.15% 5.05%
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, 2017 $72.70 2,470.30
1. Aug 31, 2017 $74.77 $0.39 3.38% 2,471.65 0.05%
2. Sep 30, 2017 $74.49 -0.37% 2,519.36 1.93%
3. Oct 31, 2017 $83.18 11.67% 2,575.26 2.22%
4. Nov 30, 2017 $84.17 $0.42 1.70% 2,647.58 2.81%
5. Dec 31, 2017 $85.54 1.63% 2,673.61 0.98%
6. Jan 31, 2018 $95.01 11.07% 2,823.81 5.62%
7. Feb 28, 2018 $93.77 $0.42 -0.86% 2,713.83 -3.89%
8. Mar 31, 2018 $91.27 -2.67% 2,640.87 -2.69%
9. Apr 30, 2018 $93.52 2.47% 2,648.05 0.27%
10. May 31, 2018 $98.84 $0.42 6.14% 2,705.27 2.16%
11. Jun 30, 2018 $98.61 -0.23% 2,718.37 0.48%
12. Jul 31, 2018 $106.08 7.58% 2,816.29 3.60%
13. Aug 31, 2018 $112.33 $0.42 6.29% 2,901.52 3.03%
14. Sep 30, 2018 $114.37 1.82% 2,913.98 0.43%
15. Oct 31, 2018 $106.81 -6.61% 2,711.74 -6.94%
16. Nov 30, 2018 $110.89 $0.46 4.25% 2,760.17 1.79%
17. Dec 31, 2018 $101.57 -8.40% 2,506.85 -9.18%
18. Jan 31, 2019 $104.43 2.82% 2,704.10 7.87%
19. Feb 28, 2019 $112.03 $0.46 7.72% 2,784.49 2.97%
20. Mar 31, 2019 $117.94 5.28% 2,834.40 1.79%
21. Apr 30, 2019 $130.60 10.73% 2,945.83 3.93%
22. May 31, 2019 $123.68 $0.46 -4.95% 2,752.06 -6.58%
23. Jun 30, 2019 $133.96 8.31% 2,941.76 6.89%
24. Jul 31, 2019 $136.27 1.72% 2,980.38 1.31%
25. Aug 31, 2019 $137.86 $0.46 1.50% 2,926.46 -1.81%
26. Sep 30, 2019 $139.03 0.85% 2,976.74 1.72%
27. Oct 31, 2019 $143.37 3.12% 3,037.56 2.04%
28. Nov 30, 2019 $151.38 $0.51 5.94% 3,140.98 3.40%
29. Dec 31, 2019 $157.70 4.17% 3,230.78 2.86%
30. Jan 31, 2020 $170.23 7.95% 3,225.52 -0.16%
31. Feb 29, 2020 $162.01 $0.51 -4.53% 2,954.22 -8.41%
32. Mar 31, 2020 $157.71 -2.65% 2,584.59 -12.51%
33. Apr 30, 2020 $179.21 13.63% 2,912.43 12.68%
34. May 31, 2020 $183.25 $0.51 2.54% 3,044.31 4.53%
35. Jun 30, 2020 $203.51 11.06% 3,100.29 1.84%
36. Jul 31, 2020 $205.01 0.74% 3,271.12 5.51%
37. Aug 31, 2020 $225.53 $0.51 10.26% 3,500.31 7.01%
38. Sep 30, 2020 $210.33 -6.74% 3,363.00 -3.92%
39. Oct 31, 2020 $202.47 -3.74% 3,269.96 -2.77%
40. Nov 30, 2020 $214.07 $0.56 6.01% 3,621.63 10.75%
41. Dec 31, 2020 $222.42 3.90% 3,756.07 3.71%
42. Jan 31, 2021 $231.96 4.29% 3,714.24 -1.11%
43. Feb 28, 2021 $232.38 $0.56 0.42% 3,811.15 2.61%
44. Mar 31, 2021 $235.77 1.46% 3,972.89 4.24%
45. Apr 30, 2021 $252.18 6.96% 4,181.17 5.24%
46. May 31, 2021 $249.68 $0.56 -0.77% 4,204.11 0.55%
47. Jun 30, 2021 $270.90 8.50% 4,297.50 2.22%
48. Jul 31, 2021 $284.91 5.17% 4,395.26 2.27%
49. Aug 31, 2021 $301.88 $0.56 6.15% 4,522.68 2.90%
50. Sep 30, 2021 $281.92 -6.61% 4,307.54 -4.76%
51. Oct 31, 2021 $331.62 17.63% 4,605.38 6.91%
52. Nov 30, 2021 $330.59 $0.62 -0.12% 4,567.00 -0.83%
53. Dec 31, 2021 $336.32 1.73% 4,766.18 4.36%
54. Jan 31, 2022 $310.98 -7.53% 4,515.55 -5.26%
55. Feb 28, 2022 $298.79 $0.62 -3.72% 4,373.94 -3.14%
56. Mar 31, 2022 $308.31 3.19% 4,530.41 3.58%
57. Apr 30, 2022 $277.52 -9.99% 4,131.93 -8.80%
58. May 31, 2022 $271.87 $0.62 -1.81% 4,132.15 0.01%
59. Jun 30, 2022 $256.83 -5.53% 3,785.38 -8.39%
60. Jul 31, 2022 $280.74 9.31% 4,130.29 9.11%
61. Aug 31, 2022 $261.47 $0.62 -6.64% 3,955.00 -4.24%
62. Sep 30, 2022 $232.90 -10.93% 3,585.62 -9.34%
63. Oct 31, 2022 $232.13 -0.33% 3,871.98 7.99%
64. Nov 30, 2022 $255.14 $0.68 10.21% 4,080.11 5.38%
65. Dec 31, 2022 $239.82 -6.00% 3,839.50 -5.90%
66. Jan 31, 2023 $247.81 3.33% 4,076.60 6.18%
67. Feb 28, 2023 $249.42 $0.68 0.92% 3,970.15 -2.61%
68. Mar 31, 2023 $288.30 15.59% 4,109.31 3.51%
69. Apr 30, 2023 $307.26 6.58% 4,169.48 1.46%
70. May 31, 2023 $328.39 $0.68 7.10% 4,179.83 0.25%
71. Jun 30, 2023 $340.54 3.70% 4,376.86 4.71%
Average (R): 2.49% 0.94%
Standard deviation: 6.15% 5.05%

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, 2017 3.38% 0.05% 0.80 0.78 -0.79
2. Sep 30, 2017 -0.37% 1.93% 8.20 0.99 -2.85
3. Oct 31, 2017 11.67% 2.22% 84.22 1.65 11.77
. . . . . . .
. . . . . . .
. . . . . . .
70. May 31, 2023 7.10% 0.25% 21.25 0.47 -3.17
71. Jun 30, 2023 3.70% 4.71% 1.47 14.27 4.58
Total (Σ): 2,645.73 1,786.26 1,672.61
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, 2017 3.38% 0.05% 0.80 0.78 -0.79
2. Sep 30, 2017 -0.37% 1.93% 8.20 0.99 -2.85
3. Oct 31, 2017 11.67% 2.22% 84.22 1.65 11.77
4. Nov 30, 2017 1.70% 2.81% 0.63 3.51 -1.49
5. Dec 31, 2017 1.63% 0.98% 0.74 0.00 -0.04
6. Jan 31, 2018 11.07% 5.62% 73.65 21.92 40.18
7. Feb 28, 2018 -0.86% -3.89% 11.24 23.33 16.19
8. Mar 31, 2018 -2.67% -2.69% 26.57 13.14 18.68
9. Apr 30, 2018 2.47% 0.27% 0.00 0.44 0.02
10. May 31, 2018 6.14% 2.16% 13.31 1.50 4.47
11. Jun 30, 2018 -0.23% 0.48% 7.41 0.20 1.23
12. Jul 31, 2018 7.58% 3.60% 25.87 7.11 13.56
13. Aug 31, 2018 6.29% 3.03% 14.43 4.37 7.94
14. Sep 30, 2018 1.82% 0.43% 0.45 0.26 0.34
15. Oct 31, 2018 -6.61% -6.94% 82.79 62.03 71.66
16. Nov 30, 2018 4.25% 1.79% 3.10 0.72 1.50
17. Dec 31, 2018 -8.40% -9.18% 118.67 102.28 110.17
18. Jan 31, 2019 2.82% 7.87% 0.11 48.06 2.27
19. Feb 28, 2019 7.72% 2.97% 27.35 4.15 10.65
20. Mar 31, 2019 5.28% 1.79% 7.76 0.73 2.39
21. Apr 30, 2019 10.73% 3.93% 67.99 8.97 24.70
22. May 31, 2019 -4.95% -6.58% 55.28 56.45 55.86
23. Jun 30, 2019 8.31% 6.89% 33.91 35.49 34.69
24. Jul 31, 2019 1.72% 1.31% 0.58 0.14 -0.29
25. Aug 31, 2019 1.50% -1.81% 0.97 7.53 2.70
26. Sep 30, 2019 0.85% 1.72% 2.69 0.61 -1.28
27. Oct 31, 2019 3.12% 2.04% 0.40 1.23 0.70
28. Nov 30, 2019 5.94% 3.40% 11.93 6.10 8.53
29. Dec 31, 2019 4.17% 2.86% 2.84 3.70 3.24
30. Jan 31, 2020 7.95% -0.16% 29.78 1.21 -5.99
31. Feb 29, 2020 -4.53% -8.41% 49.25 87.36 65.60
32. Mar 31, 2020 -2.65% -12.51% 26.45 180.84 69.16
33. Apr 30, 2020 13.63% 12.68% 124.18 138.03 130.92
34. May 31, 2020 2.54% 4.53% 0.00 12.91 0.18
35. Jun 30, 2020 11.06% 1.84% 73.40 0.82 7.74
36. Jul 31, 2020 0.74% 5.51% 3.07 20.92 -8.01
37. Aug 31, 2020 10.26% 7.01% 60.36 36.85 47.16
38. Sep 30, 2020 -6.74% -3.92% 85.16 23.61 44.84
39. Oct 31, 2020 -3.74% -2.77% 38.76 13.71 23.05
40. Nov 30, 2020 6.01% 10.75% 12.37 96.41 34.53
41. Dec 31, 2020 3.90% 3.71% 1.99 7.71 3.92
42. Jan 31, 2021 4.29% -1.11% 3.24 4.20 -3.69
43. Feb 28, 2021 0.42% 2.61% 4.27 2.80 -3.46
44. Mar 31, 2021 1.46% 4.24% 1.06 10.94 -3.41
45. Apr 30, 2021 6.96% 5.24% 19.99 18.55 19.26
46. May 31, 2021 -0.77% 0.55% 10.62 0.15 1.26
47. Jun 30, 2021 8.50% 2.22% 36.12 1.65 7.73
48. Jul 31, 2021 5.17% 2.27% 7.20 1.79 3.59
49. Aug 31, 2021 6.15% 2.90% 13.43 3.85 7.19
50. Sep 30, 2021 -6.61% -4.76% 82.82 32.41 51.81
51. Oct 31, 2021 17.63% 6.91% 229.23 35.74 90.52
52. Nov 30, 2021 -0.12% -0.83% 6.82 3.13 4.62
53. Dec 31, 2021 1.73% 4.36% 0.57 11.73 -2.59
54. Jan 31, 2022 -7.53% -5.26% 100.47 38.37 62.09
55. Feb 28, 2022 -3.72% -3.14% 38.56 16.58 25.28
56. Mar 31, 2022 3.19% 3.58% 0.49 6.98 1.84
57. Apr 30, 2022 -9.99% -8.80% 155.64 94.70 121.40
58. May 31, 2022 -1.81% 0.01% 18.50 0.87 4.00
59. Jun 30, 2022 -5.53% -8.39% 64.33 87.01 74.82
60. Jul 31, 2022 9.31% 9.11% 46.52 66.84 55.77
61. Aug 31, 2022 -6.64% -4.24% 83.39 26.83 47.30
62. Sep 30, 2022 -10.93% -9.34% 179.98 105.58 137.85
63. Oct 31, 2022 -0.33% 7.99% 7.95 49.71 -19.88
64. Nov 30, 2022 10.21% 5.38% 59.55 19.71 34.26
65. Dec 31, 2022 -6.00% -5.90% 72.14 46.69 58.03
66. Jan 31, 2023 3.33% 6.18% 0.71 27.45 4.42
67. Feb 28, 2023 0.92% -2.61% 2.45 12.58 5.55
68. Mar 31, 2023 15.59% 3.51% 171.59 6.60 33.66
69. Apr 30, 2023 6.58% 1.46% 16.71 0.28 2.16
70. May 31, 2023 7.10% 0.25% 21.25 0.47 -3.17
71. Jun 30, 2023 3.70% 4.71% 1.47 14.27 4.58
Total (Σ): 2,645.73 1,786.26 1,672.61

Show all

VarianceMSFT = Σ(RMSFT,tRMSFT)2 ÷ (71 – 1)
= 2,645.73 ÷ (71 – 1)
= 37.80

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (71 – 1)
= 1,786.26 ÷ (71 – 1)
= 25.52

CovarianceMSFT, S&P 500 = Σ(RMSFT,tRMSFT)×(RS&P 500,tRS&P 500) ÷ (71 – 1)
= 1,672.61 ÷ (71 – 1)
= 23.89


Systematic Risk (β) Estimation

Microsoft Excel
VarianceMSFT 37.80
VarianceS&P 500 25.52
CovarianceMSFT, S&P 500 23.89
Correlation coefficientMSFT, S&P 5001 0.77
βMSFT2 0.94
αMSFT3 1.61%

Calculations

1 Correlation coefficientMSFT, S&P 500
= CovarianceMSFT, S&P 500 ÷ (Standard deviationMSFT × Standard deviationS&P 500)
= 23.89 ÷ (6.15% × 5.05%)
= 0.77

2 βMSFT
= CovarianceMSFT, S&P 500 ÷ VarianceS&P 500
= 23.89 ÷ 25.52
= 0.94

3 αMSFT
= AverageMSFT – βMSFT × AverageS&P 500
= 2.49%0.94 × 0.94%
= 1.61%


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) 13.62%
Systematic risk (β) of Microsoft Corp. common stock βMSFT 0.94
 
Expected rate of return on Microsoft Corp. common stock3 E(RMSFT) 13.04%

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]
= 4.55% + 0.94 [13.62%4.55%]
= 13.04%