Microsoft Corp. (NASDAQ:MSFT)

Capital Asset Pricing Model (CAPM)

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

Rates of Return
Variance and Covariance
Systematic Risk (β) Estimation
Expected Rate of Return

Rates of Return

Microsoft Corp., monthly rates of return

		Microsoft Corp. (MSFT)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_MSFT,t¹	Dividend_MSFT,t¹	R_MSFT,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jul 31, 2019	$136.27			2,980.38
1.	Aug 31, 2019	$137.86	$0.46	1.50%	2,926.46	-1.81%
2.	Sep 30, 2019	$139.03		0.85%	2,976.74	1.72%
3.	Oct 31, 2019	$143.37		3.12%	3,037.56	2.04%
.	.	.	.	.	.	.
.	.	.	.	.	.	.
.	.	.	.	.	.	.
67.	Feb 28, 2025	$396.99	$0.83	-4.15%	5,954.50	-1.42%
68.	Mar 31, 2025	$375.39		-5.44%	5,611.85	-5.75%
Average (R):				1.77%		1.06%
Standard deviation:				6.22%		5.03%

		Microsoft Corp. (MSFT)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_MSFT,t¹	Dividend_MSFT,t¹	R_MSFT,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jul 31, 2019	$136.27			2,980.38
1.	Aug 31, 2019	$137.86	$0.46	1.50%	2,926.46	-1.81%
2.	Sep 30, 2019	$139.03		0.85%	2,976.74	1.72%
3.	Oct 31, 2019	$143.37		3.12%	3,037.56	2.04%
4.	Nov 30, 2019	$151.38	$0.51	5.94%	3,140.98	3.40%
5.	Dec 31, 2019	$157.70		4.17%	3,230.78	2.86%
6.	Jan 31, 2020	$170.23		7.95%	3,225.52	-0.16%
7.	Feb 29, 2020	$162.01	$0.51	-4.53%	2,954.22	-8.41%
8.	Mar 31, 2020	$157.71		-2.65%	2,584.59	-12.51%
9.	Apr 30, 2020	$179.21		13.63%	2,912.43	12.68%
10.	May 31, 2020	$183.25	$0.51	2.54%	3,044.31	4.53%
11.	Jun 30, 2020	$203.51		11.06%	3,100.29	1.84%
12.	Jul 31, 2020	$205.01		0.74%	3,271.12	5.51%
13.	Aug 31, 2020	$225.53	$0.51	10.26%	3,500.31	7.01%
14.	Sep 30, 2020	$210.33		-6.74%	3,363.00	-3.92%
15.	Oct 31, 2020	$202.47		-3.74%	3,269.96	-2.77%
16.	Nov 30, 2020	$214.07	$0.56	6.01%	3,621.63	10.75%
17.	Dec 31, 2020	$222.42		3.90%	3,756.07	3.71%
18.	Jan 31, 2021	$231.96		4.29%	3,714.24	-1.11%
19.	Feb 28, 2021	$232.38	$0.56	0.42%	3,811.15	2.61%
20.	Mar 31, 2021	$235.77		1.46%	3,972.89	4.24%
21.	Apr 30, 2021	$252.18		6.96%	4,181.17	5.24%
22.	May 31, 2021	$249.68	$0.56	-0.77%	4,204.11	0.55%
23.	Jun 30, 2021	$270.90		8.50%	4,297.50	2.22%
24.	Jul 31, 2021	$284.91		5.17%	4,395.26	2.27%
25.	Aug 31, 2021	$301.88	$0.56	6.15%	4,522.68	2.90%
26.	Sep 30, 2021	$281.92		-6.61%	4,307.54	-4.76%
27.	Oct 31, 2021	$331.62		17.63%	4,605.38	6.91%
28.	Nov 30, 2021	$330.59	$0.62	-0.12%	4,567.00	-0.83%
29.	Dec 31, 2021	$336.32		1.73%	4,766.18	4.36%
30.	Jan 31, 2022	$310.98		-7.53%	4,515.55	-5.26%
31.	Feb 28, 2022	$298.79	$0.62	-3.72%	4,373.94	-3.14%
32.	Mar 31, 2022	$308.31		3.19%	4,530.41	3.58%
33.	Apr 30, 2022	$277.52		-9.99%	4,131.93	-8.80%
34.	May 31, 2022	$271.87	$0.62	-1.81%	4,132.15	0.01%
35.	Jun 30, 2022	$256.83		-5.53%	3,785.38	-8.39%
36.	Jul 31, 2022	$280.74		9.31%	4,130.29	9.11%
37.	Aug 31, 2022	$261.47	$0.62	-6.64%	3,955.00	-4.24%
38.	Sep 30, 2022	$232.90		-10.93%	3,585.62	-9.34%
39.	Oct 31, 2022	$232.13		-0.33%	3,871.98	7.99%
40.	Nov 30, 2022	$255.14	$0.68	10.21%	4,080.11	5.38%
41.	Dec 31, 2022	$239.82		-6.00%	3,839.50	-5.90%
42.	Jan 31, 2023	$247.81		3.33%	4,076.60	6.18%
43.	Feb 28, 2023	$249.42	$0.68	0.92%	3,970.15	-2.61%
44.	Mar 31, 2023	$288.30		15.59%	4,109.31	3.51%
45.	Apr 30, 2023	$307.26		6.58%	4,169.48	1.46%
46.	May 31, 2023	$328.39	$0.68	7.10%	4,179.83	0.25%
47.	Jun 30, 2023	$340.54		3.70%	4,376.86	4.71%
48.	Jul 31, 2023	$335.92		-1.36%	4,588.96	4.85%
49.	Aug 31, 2023	$327.76	$0.68	-2.23%	4,507.66	-1.77%
50.	Sep 30, 2023	$315.75		-3.66%	4,288.05	-4.87%
51.	Oct 31, 2023	$338.11		7.08%	4,193.80	-2.20%
52.	Nov 30, 2023	$378.91	$0.75	12.29%	4,567.80	8.92%
53.	Dec 31, 2023	$376.04		-0.76%	4,769.83	4.42%
54.	Jan 31, 2024	$397.58		5.73%	4,845.65	1.59%
55.	Feb 29, 2024	$413.64	$0.75	4.23%	5,096.27	5.17%
56.	Mar 31, 2024	$420.72		1.71%	5,254.35	3.10%
57.	Apr 30, 2024	$389.33		-7.46%	5,035.69	-4.16%
58.	May 31, 2024	$415.13	$0.75	6.82%	5,277.51	4.80%
59.	Jun 30, 2024	$446.95		7.67%	5,460.48	3.47%
60.	Jul 31, 2024	$418.35		-6.40%	5,522.30	1.13%
61.	Aug 31, 2024	$417.14	$0.75	-0.11%	5,648.40	2.28%
62.	Sep 30, 2024	$430.30		3.15%	5,762.48	2.02%
63.	Oct 31, 2024	$406.35		-5.57%	5,705.45	-0.99%
64.	Nov 30, 2024	$423.46	$0.83	4.41%	6,032.38	5.73%
65.	Dec 31, 2024	$421.50		-0.46%	5,881.63	-2.50%
66.	Jan 31, 2025	$415.06		-1.53%	6,040.53	2.70%
67.	Feb 28, 2025	$396.99	$0.83	-4.15%	5,954.50	-1.42%
68.	Mar 31, 2025	$375.39		-5.44%	5,611.85	-5.75%
Average (R):				1.77%		1.06%
Standard deviation:				6.22%		5.03%

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

t	Date	R_MSFT,t	R_{S&P 500,t}	(R_MSFT,t–R_MSFT)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_MSFT,t–R_MSFT)×(R_{S&P 500,t}–R_{S&P 500})
1.	Aug 31, 2019	1.50%	-1.81%	0.07	8.23	0.76
2.	Sep 30, 2019	0.85%	1.72%	0.84	0.43	-0.60
3.	Oct 31, 2019	3.12%	2.04%	1.83	0.97	1.33
.	.	.	.	.	.	.
.	.	.	.	.	.	.
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67.	Feb 28, 2025	-4.15%	-1.42%	35.06	6.17	14.71
68.	Mar 31, 2025	-5.44%	-5.75%	51.97	46.44	49.13
Total (Σ):				2,593.17	1,694.39	1,522.21

t	Date	R_MSFT,t	R_{S&P 500,t}	(R_MSFT,t–R_MSFT)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_MSFT,t–R_MSFT)×(R_{S&P 500,t}–R_{S&P 500})
1.	Aug 31, 2019	1.50%	-1.81%	0.07	8.23	0.76
2.	Sep 30, 2019	0.85%	1.72%	0.84	0.43	-0.60
3.	Oct 31, 2019	3.12%	2.04%	1.83	0.97	1.33
4.	Nov 30, 2019	5.94%	3.40%	17.43	5.50	9.79
5.	Dec 31, 2019	4.17%	2.86%	5.79	3.24	4.33
6.	Jan 31, 2020	7.95%	-0.16%	38.16	1.50	-7.56
7.	Feb 29, 2020	-4.53%	-8.41%	39.65	89.70	59.64
8.	Mar 31, 2020	-2.65%	-12.51%	19.55	184.20	60.02
9.	Apr 30, 2020	13.63%	12.68%	140.77	135.12	137.92
10.	May 31, 2020	2.54%	4.53%	0.59	12.03	2.67
11.	Jun 30, 2020	11.06%	1.84%	86.27	0.61	7.23
12.	Jul 31, 2020	0.74%	5.51%	1.06	19.80	-4.59
13.	Aug 31, 2020	10.26%	7.01%	72.08	35.36	50.49
14.	Sep 30, 2020	-6.74%	-3.92%	72.38	24.83	42.39
15.	Oct 31, 2020	-3.74%	-2.77%	30.30	14.64	21.07
16.	Nov 30, 2020	6.01%	10.75%	17.96	93.98	41.08
17.	Dec 31, 2020	3.90%	3.71%	4.55	7.03	5.66
18.	Jan 31, 2021	4.29%	-1.11%	6.36	4.73	-5.48
19.	Feb 28, 2021	0.42%	2.61%	1.81	2.40	-2.08
20.	Mar 31, 2021	1.46%	4.24%	0.10	10.14	-0.98
21.	Apr 30, 2021	6.96%	5.24%	26.96	17.49	21.72
22.	May 31, 2021	-0.77%	0.55%	6.44	0.26	1.30
23.	Jun 30, 2021	8.50%	2.22%	45.31	1.35	7.82
24.	Jul 31, 2021	5.17%	2.27%	11.59	1.48	4.13
25.	Aug 31, 2021	6.15%	2.90%	19.23	3.38	8.06
26.	Sep 30, 2021	-6.61%	-4.76%	70.22	33.84	48.75
27.	Oct 31, 2021	17.63%	6.91%	251.58	34.27	92.86
28.	Nov 30, 2021	-0.12%	-0.83%	3.58	3.59	3.58
29.	Dec 31, 2021	1.73%	4.36%	0.00	10.90	-0.11
30.	Jan 31, 2022	-7.53%	-5.26%	86.53	39.93	58.78
31.	Feb 28, 2022	-3.72%	-3.14%	30.12	17.61	23.03
32.	Mar 31, 2022	3.19%	3.58%	2.01	6.34	3.57
33.	Apr 30, 2022	-9.99%	-8.80%	138.17	97.14	115.85
34.	May 31, 2022	-1.81%	0.01%	12.82	1.11	3.78
35.	Jun 30, 2022	-5.53%	-8.39%	53.29	89.34	69.00
36.	Jul 31, 2022	9.31%	9.11%	56.88	64.83	60.72
37.	Aug 31, 2022	-6.64%	-4.24%	70.74	28.13	44.61
38.	Sep 30, 2022	-10.93%	-9.34%	161.15	108.15	132.02
39.	Oct 31, 2022	-0.33%	7.99%	4.40	47.97	-14.53
40.	Nov 30, 2022	10.21%	5.38%	71.19	18.62	36.41
41.	Dec 31, 2022	-6.00%	-5.90%	60.41	48.40	54.07
42.	Jan 31, 2023	3.33%	6.18%	2.45	26.16	8.00
43.	Feb 28, 2023	0.92%	-2.61%	0.71	13.48	3.10
44.	Mar 31, 2023	15.59%	3.51%	191.00	5.98	33.79
45.	Apr 30, 2023	6.58%	1.46%	23.12	0.16	1.94
46.	May 31, 2023	7.10%	0.25%	28.41	0.66	-4.33
47.	Jun 30, 2023	3.70%	4.71%	3.73	13.35	7.06
48.	Jul 31, 2023	-1.36%	4.85%	9.76	14.33	-11.83
49.	Aug 31, 2023	-2.23%	-1.77%	15.96	8.02	11.31
50.	Sep 30, 2023	-3.66%	-4.87%	29.51	35.19	32.22
51.	Oct 31, 2023	7.08%	-2.20%	28.24	10.62	-17.31
52.	Nov 30, 2023	12.29%	8.92%	110.69	61.74	82.67
53.	Dec 31, 2023	-0.76%	4.42%	6.38	11.31	-8.49
54.	Jan 31, 2024	5.73%	1.59%	15.68	0.28	2.10
55.	Feb 29, 2024	4.23%	5.17%	6.05	16.91	10.12
56.	Mar 31, 2024	1.71%	3.10%	0.00	4.17	-0.11
57.	Apr 30, 2024	-7.46%	-4.16%	85.17	27.27	48.19
58.	May 31, 2024	6.82%	4.80%	25.52	14.00	18.90
59.	Jun 30, 2024	7.67%	3.47%	34.78	5.79	14.19
60.	Jul 31, 2024	-6.40%	1.13%	66.70	0.01	-0.59
61.	Aug 31, 2024	-0.11%	2.28%	3.53	1.50	-2.30
62.	Sep 30, 2024	3.15%	2.02%	1.92	0.92	1.33
63.	Oct 31, 2024	-5.57%	-0.99%	53.78	4.20	15.03
64.	Nov 30, 2024	4.41%	5.73%	7.01	21.81	12.36
65.	Dec 31, 2024	-0.46%	-2.50%	4.98	12.67	7.94
66.	Jan 31, 2025	-1.53%	2.70%	10.86	2.69	-5.41
67.	Feb 28, 2025	-4.15%	-1.42%	35.06	6.17	14.71
68.	Mar 31, 2025	-5.44%	-5.75%	51.97	46.44	49.13
Total (Σ):				2,593.17	1,694.39	1,522.21

Show all

Variance_MSFT = Σ(R_MSFT,t–R_MSFT)² ÷ (68 – 1)
= 2,593.17 ÷ (68 – 1)
= 38.70

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (68 – 1)
= 1,694.39 ÷ (68 – 1)
= 25.29

Covariance_{MSFT, S&P 500} = Σ(R_MSFT,t–R_MSFT)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (68 – 1)
= 1,522.21 ÷ (68 – 1)
= 22.72

Systematic Risk (β) Estimation

Variance_MSFT	38.70
Variance_{S&P 500}	25.29
Covariance_{MSFT, S&P 500}	22.72
Correlation coefficient_{MSFT, S&P 500}¹	0.73
β_MSFT²	0.90
α_MSFT³	0.82%

Calculations

¹ Correlation coefficient_{MSFT, S&P 500}
= Covariance_{MSFT, S&P 500} ÷ (Standard deviation_MSFT × Standard deviation_{S&P 500})
= 22.72 ÷ (6.22% × 5.03%)
= 0.73

² β_MSFT
= Covariance_{MSFT, S&P 500} ÷ Variance_{S&P 500}
= 22.72 ÷ 25.29
= 0.90

³ α_MSFT
= Average_MSFT – β_MSFT × Average_{S&P 500}
= 1.77% – 0.90 × 1.06%
= 0.82%

Expected Rate of Return

Assumptions
Rate of return on LT Treasury Composite¹	R_F	4.86%
Expected rate of return on market portfolio²	E(R_M)	14.66%
Systematic risk (β) of Microsoft Corp. common stock	β_MSFT	0.90

Expected rate of return on Microsoft Corp. common stock³	E(R_MSFT)	13.66%

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(R_MSFT) = R_F + β_MSFT [E(R_M) – R_F]
= 4.86% + 0.90 [14.66% – 4.86%]
= 13.66%