Monolithic Power Systems Inc. (NASDAQ:MPWR)

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 Monolithic Power Systems Inc. common stock.

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

Rates of Return

Monolithic Power Systems Inc., monthly rates of return

		Monolithic Power Systems Inc. (MPWR)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_MPWR,t¹	Dividend_MPWR,t¹	R_MPWR,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2020	$171.17			3,225.52
1.	Feb 29, 2020	$158.64		-7.32%	2,954.22	-8.41%
2.	Mar 31, 2020	$167.46	$0.50	5.87%	2,584.59	-12.51%
3.	Apr 30, 2020	$199.91		19.38%	2,912.43	12.68%
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58.	Nov 30, 2024	$567.64		-25.24%	6,032.38	5.73%
59.	Dec 31, 2024	$591.70	$1.25	4.46%	5,881.63	-2.50%
Average (R):				2.85%		1.16%
Standard deviation:				11.54%		5.28%

		Monolithic Power Systems Inc. (MPWR)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_MPWR,t¹	Dividend_MPWR,t¹	R_MPWR,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2020	$171.17			3,225.52
1.	Feb 29, 2020	$158.64		-7.32%	2,954.22	-8.41%
2.	Mar 31, 2020	$167.46	$0.50	5.87%	2,584.59	-12.51%
3.	Apr 30, 2020	$199.91		19.38%	2,912.43	12.68%
4.	May 31, 2020	$209.75		4.92%	3,044.31	4.53%
5.	Jun 30, 2020	$237.00	$0.50	13.23%	3,100.29	1.84%
6.	Jul 31, 2020	$265.01		11.82%	3,271.12	5.51%
7.	Aug 31, 2020	$267.13		0.80%	3,500.31	7.01%
8.	Sep 30, 2020	$279.61	$0.50	4.86%	3,363.00	-3.92%
9.	Oct 31, 2020	$319.60		14.30%	3,269.96	-2.77%
10.	Nov 30, 2020	$319.96		0.11%	3,621.63	10.75%
11.	Dec 31, 2020	$366.23	$0.50	14.62%	3,756.07	3.71%
12.	Jan 31, 2021	$355.29		-2.99%	3,714.24	-1.11%
13.	Feb 28, 2021	$374.52		5.41%	3,811.15	2.61%
14.	Mar 31, 2021	$353.21	$0.60	-5.53%	3,972.89	4.24%
15.	Apr 30, 2021	$361.38		2.31%	4,181.17	5.24%
16.	May 31, 2021	$343.12		-5.05%	4,204.11	0.55%
17.	Jun 30, 2021	$373.45	$0.60	9.01%	4,297.50	2.22%
18.	Jul 31, 2021	$449.26		20.30%	4,395.26	2.27%
19.	Aug 31, 2021	$494.93		10.17%	4,522.68	2.90%
20.	Sep 30, 2021	$484.68	$0.60	-1.95%	4,307.54	-4.76%
21.	Oct 31, 2021	$525.46		8.41%	4,605.38	6.91%
22.	Nov 30, 2021	$553.46		5.33%	4,567.00	-0.83%
23.	Dec 31, 2021	$493.33	$0.60	-10.76%	4,766.18	4.36%
24.	Jan 31, 2022	$402.93		-18.32%	4,515.55	-5.26%
25.	Feb 28, 2022	$458.70		13.84%	4,373.94	-3.14%
26.	Mar 31, 2022	$485.68	$0.75	6.05%	4,530.41	3.58%
27.	Apr 30, 2022	$392.24		-19.24%	4,131.93	-8.80%
28.	May 31, 2022	$450.39		14.83%	4,132.15	0.01%
29.	Jun 30, 2022	$384.04	$0.75	-14.57%	3,785.38	-8.39%
30.	Jul 31, 2022	$464.72		21.01%	4,130.29	9.11%
31.	Aug 31, 2022	$453.18		-2.48%	3,955.00	-4.24%
32.	Sep 30, 2022	$363.40	$0.75	-19.65%	3,585.62	-9.34%
33.	Oct 31, 2022	$339.45		-6.59%	3,871.98	7.99%
34.	Nov 30, 2022	$381.96		12.52%	4,080.11	5.38%
35.	Dec 31, 2022	$353.61	$0.75	-7.23%	3,839.50	-5.90%
36.	Jan 31, 2023	$426.56		20.63%	4,076.60	6.18%
37.	Feb 28, 2023	$484.29		13.53%	3,970.15	-2.61%
38.	Mar 31, 2023	$500.54	$1.00	3.56%	4,109.31	3.51%
39.	Apr 30, 2023	$461.97		-7.71%	4,169.48	1.46%
40.	May 31, 2023	$489.91		6.05%	4,179.83	0.25%
41.	Jun 30, 2023	$540.23	$1.00	10.48%	4,376.86	4.71%
42.	Jul 31, 2023	$559.49		3.57%	4,588.96	4.85%
43.	Aug 31, 2023	$521.21		-6.84%	4,507.66	-1.77%
44.	Sep 30, 2023	$462.00	$1.00	-11.17%	4,288.05	-4.87%
45.	Oct 31, 2023	$441.74		-4.39%	4,193.80	-2.20%
46.	Nov 30, 2023	$548.72		24.22%	4,567.80	8.92%
47.	Dec 31, 2023	$630.78	$1.00	15.14%	4,769.83	4.42%
48.	Jan 31, 2024	$602.72		-4.45%	4,845.65	1.59%
49.	Feb 29, 2024	$720.04		19.47%	5,096.27	5.17%
50.	Mar 31, 2024	$677.42	$1.25	-5.75%	5,254.35	3.10%
51.	Apr 30, 2024	$669.33		-1.19%	5,035.69	-4.16%
52.	May 31, 2024	$735.63		9.91%	5,277.51	4.80%
53.	Jun 30, 2024	$821.68	$1.25	11.87%	5,460.48	3.47%
54.	Jul 31, 2024	$863.09		5.04%	5,522.30	1.13%
55.	Aug 31, 2024	$934.68		8.29%	5,648.40	2.28%
56.	Sep 30, 2024	$924.50	$1.25	-0.96%	5,762.48	2.02%
57.	Oct 31, 2024	$759.30		-17.87%	5,705.45	-0.99%
58.	Nov 30, 2024	$567.64		-25.24%	6,032.38	5.73%
59.	Dec 31, 2024	$591.70	$1.25	4.46%	5,881.63	-2.50%
Average (R):				2.85%		1.16%
Standard deviation:				11.54%		5.28%

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¹ Data in US$ per share of common stock, adjusted for splits and stock dividends.

² Rate of return on common stock of MPWR during period t

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

Variance and Covariance

Monolithic Power Systems Inc., calculation of variance and covariance of returns

t	Date	R_MPWR,t	R_{S&P 500,t}	(R_MPWR,t–R_MPWR)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_MPWR,t–R_MPWR)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 29, 2020	-7.32%	-8.41%	103.41	91.63	97.34
2.	Mar 31, 2020	5.87%	-12.51%	9.16	186.96	-41.38
3.	Apr 30, 2020	19.38%	12.68%	273.21	132.78	190.47
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58.	Nov 30, 2024	-25.24%	5.73%	789.08	20.87	-128.34
59.	Dec 31, 2024	4.46%	-2.50%	2.59	13.40	-5.89
Total (Σ):				7,722.91	1,618.62	1,651.40

t	Date	R_MPWR,t	R_{S&P 500,t}	(R_MPWR,t–R_MPWR)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_MPWR,t–R_MPWR)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 29, 2020	-7.32%	-8.41%	103.41	91.63	97.34
2.	Mar 31, 2020	5.87%	-12.51%	9.16	186.96	-41.38
3.	Apr 30, 2020	19.38%	12.68%	273.21	132.78	190.47
4.	May 31, 2020	4.92%	4.53%	4.30	11.34	6.98
5.	Jun 30, 2020	13.23%	1.84%	107.77	0.46	7.03
6.	Jul 31, 2020	11.82%	5.51%	80.46	18.91	39.01
7.	Aug 31, 2020	0.80%	7.01%	4.20	34.17	-11.98
8.	Sep 30, 2020	4.86%	-3.92%	4.04	25.85	-10.22
9.	Oct 31, 2020	14.30%	-2.77%	131.18	15.43	-44.99
10.	Nov 30, 2020	0.11%	10.75%	7.49	92.03	-26.25
11.	Dec 31, 2020	14.62%	3.71%	138.50	6.51	30.02
12.	Jan 31, 2021	-2.99%	-1.11%	34.06	5.18	13.28
13.	Feb 28, 2021	5.41%	2.61%	6.57	2.10	3.71
14.	Mar 31, 2021	-5.53%	4.24%	70.20	9.50	-25.83
15.	Apr 30, 2021	2.31%	5.24%	0.29	16.66	-2.19
16.	May 31, 2021	-5.05%	0.55%	62.44	0.38	4.84
17.	Jun 30, 2021	9.01%	2.22%	38.01	1.12	6.54
18.	Jul 31, 2021	20.30%	2.27%	304.54	1.24	19.43
19.	Aug 31, 2021	10.17%	2.90%	53.54	3.02	12.71
20.	Sep 30, 2021	-1.95%	-4.76%	23.03	35.02	28.40
21.	Oct 31, 2021	8.41%	6.91%	30.97	33.10	32.02
22.	Nov 30, 2021	5.33%	-0.83%	6.15	3.98	-4.95
23.	Dec 31, 2021	-10.76%	4.36%	185.09	10.24	-43.54
24.	Jan 31, 2022	-18.32%	-5.26%	448.31	41.21	135.93
25.	Feb 28, 2022	13.84%	-3.14%	120.83	18.47	-47.24
26.	Mar 31, 2022	6.05%	3.58%	10.22	5.84	7.72
27.	Apr 30, 2022	-19.24%	-8.80%	487.87	99.14	219.93
28.	May 31, 2022	14.83%	0.01%	143.43	1.34	-13.84
29.	Jun 30, 2022	-14.57%	-8.39%	303.25	91.26	166.36
30.	Jul 31, 2022	21.01%	9.11%	329.76	63.21	144.37
31.	Aug 31, 2022	-2.48%	-4.24%	28.43	29.22	28.82
32.	Sep 30, 2022	-19.65%	-9.34%	506.00	110.27	236.21
33.	Oct 31, 2022	-6.59%	7.99%	89.10	46.58	-64.42
34.	Nov 30, 2022	12.52%	5.38%	93.59	17.76	40.77
35.	Dec 31, 2022	-7.23%	-5.90%	101.50	49.82	71.11
36.	Jan 31, 2023	20.63%	6.18%	316.17	25.14	89.16
37.	Feb 28, 2023	13.53%	-2.61%	114.17	14.23	-40.31
38.	Mar 31, 2023	3.56%	3.51%	0.51	5.49	1.67
39.	Apr 30, 2023	-7.71%	1.46%	111.40	0.09	-3.20
40.	May 31, 2023	6.05%	0.25%	10.23	0.83	-2.92
41.	Jun 30, 2023	10.48%	4.71%	58.16	12.62	27.09
42.	Jul 31, 2023	3.57%	4.85%	0.51	13.58	2.64
43.	Aug 31, 2023	-6.84%	-1.77%	93.91	8.60	28.42
44.	Sep 30, 2023	-11.17%	-4.87%	196.48	36.40	84.57
45.	Oct 31, 2023	-4.39%	-2.20%	52.33	11.28	24.30
46.	Nov 30, 2023	24.22%	8.92%	456.64	60.17	165.75
47.	Dec 31, 2023	15.14%	4.42%	151.00	10.64	40.08
48.	Jan 31, 2024	-4.45%	1.59%	53.25	0.18	-3.13
49.	Feb 29, 2024	19.47%	5.17%	276.10	16.09	66.64
50.	Mar 31, 2024	-5.75%	3.10%	73.86	3.77	-16.68
51.	Apr 30, 2024	-1.19%	-4.16%	16.35	28.33	21.52
52.	May 31, 2024	9.91%	4.80%	49.80	13.26	25.69
53.	Jun 30, 2024	11.87%	3.47%	81.33	5.32	20.79
54.	Jul 31, 2024	5.04%	1.13%	4.80	0.00	-0.06
55.	Aug 31, 2024	8.29%	2.28%	29.66	1.26	6.11
56.	Sep 30, 2024	-0.96%	2.02%	14.47	0.74	-3.27
57.	Oct 31, 2024	-17.87%	-0.99%	429.23	4.63	44.56
58.	Nov 30, 2024	-25.24%	5.73%	789.08	20.87	-128.34
59.	Dec 31, 2024	4.46%	-2.50%	2.59	13.40	-5.89
Total (Σ):				7,722.91	1,618.62	1,651.40

Show all

Variance_MPWR = Σ(R_MPWR,t–R_MPWR)² ÷ (59 – 1)
= 7,722.91 ÷ (59 – 1)
= 133.15

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (59 – 1)
= 1,618.62 ÷ (59 – 1)
= 27.91

Covariance_{MPWR, S&P 500} = Σ(R_MPWR,t–R_MPWR)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (59 – 1)
= 1,651.40 ÷ (59 – 1)
= 28.47

Systematic Risk (β) Estimation

Variance_MPWR	133.15
Variance_{S&P 500}	27.91
Covariance_{MPWR, S&P 500}	28.47
Correlation coefficient_{MPWR, S&P 500}¹	0.47
β_MPWR²	1.02
α_MPWR³	1.66%

Calculations

¹ Correlation coefficient_{MPWR, S&P 500}
= Covariance_{MPWR, S&P 500} ÷ (Standard deviation_MPWR × Standard deviation_{S&P 500})
= 28.47 ÷ (11.54% × 5.28%)
= 0.47

² β_MPWR
= Covariance_{MPWR, S&P 500} ÷ Variance_{S&P 500}
= 28.47 ÷ 27.91
= 1.02

³ α_MPWR
= Average_MPWR – β_MPWR × Average_{S&P 500}
= 2.85% – 1.02 × 1.16%
= 1.66%

Expected Rate of Return

Assumptions
Rate of return on LT Treasury Composite¹	R_F	4.56%
Expected rate of return on market portfolio²	E(R_M)	14.87%
Systematic risk (β) of Monolithic Power Systems Inc. common stock	β_MPWR	1.02

Expected rate of return on Monolithic Power Systems Inc. common stock³	E(R_MPWR)	15.08%

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_MPWR) = R_F + β_MPWR [E(R_M) – R_F]
= 4.56% + 1.02 [14.87% – 4.56%]
= 15.08%