Microsoft Excel LibreOffice Calc

Qualcomm Inc. (QCOM)


Capital Asset Pricing Model (CAPM)

Medium level of difficulty

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


Rates of Return

Qualcomm Inc., monthly rates of return

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Qualcomm Inc. (QCOM) Standard & Poor’s 500 (S&P 500)
t Date PriceQCOM,t1 DividendQCOM,t1 RQCOM,t2 PriceS&P 500,t RS&P 500,t3
Oct 31, 2013 69.49 1,756.54
1. Nov 30, 2013 73.58 0.35 6.39% 1,805.81 2.80%
2. Dec 31, 2013 74.25 0.91% 1,848.36 2.36%
3. Jan 31, 2014 74.22 -0.04% 1,782.59 -3.56%
. . . . . . .
. . . . . . .
. . . . . . .
63. Jan 31, 2019 49.52 -12.99% 2,704.10 7.87%
64. Feb 28, 2019 53.39 7.82% 2,784.49 2.97%
Average: 0.23% 0.77%
Standard deviation: 8.86% 3.21%
Qualcomm Inc. (QCOM) Standard & Poor’s 500 (S&P 500)
t Date PriceQCOM,t1 DividendQCOM,t1 RQCOM,t2 PriceS&P 500,t RS&P 500,t3
Oct 31, 2013 69.49 1,756.54
1. Nov 30, 2013 73.58 0.35 6.39% 1,805.81 2.80%
2. Dec 31, 2013 74.25 0.91% 1,848.36 2.36%
3. Jan 31, 2014 74.22 -0.04% 1,782.59 -3.56%
4. Feb 28, 2014 75.29 1.44% 1,859.45 4.31%
5. Mar 31, 2014 78.86 0.35 5.21% 1,872.34 0.69%
6. Apr 30, 2014 78.71 -0.19% 1,883.95 0.62%
7. May 31, 2014 80.45 2.21% 1,923.57 2.10%
8. Jun 30, 2014 79.20 0.42 -1.03% 1,960.23 1.91%
9. Jul 31, 2014 73.72 -6.92% 1,930.67 -1.51%
10. Aug 31, 2014 76.10 0.42 3.80% 2,003.37 3.77%
11. Sep 30, 2014 74.77 -1.75% 1,972.29 -1.55%
12. Oct 31, 2014 78.51 5.00% 2,018.05 2.32%
13. Nov 30, 2014 72.90 0.42 -6.61% 2,067.56 2.45%
14. Dec 31, 2014 74.33 1.96% 2,058.90 -0.42%
15. Jan 31, 2015 62.46 -15.97% 1,994.99 -3.10%
16. Feb 28, 2015 72.51 16.09% 2,104.50 5.49%
17. Mar 31, 2015 69.34 0.42 -3.79% 2,067.89 -1.74%
18. Apr 30, 2015 68.00 -1.93% 2,085.51 0.85%
19. May 31, 2015 69.68 2.47% 2,107.39 1.05%
20. Jun 30, 2015 62.63 0.48 -9.43% 2,063.11 -2.10%
21. Jul 31, 2015 64.39 2.81% 2,103.84 1.97%
22. Aug 31, 2015 56.58 0.48 -11.38% 1,972.18 -6.26%
23. Sep 30, 2015 53.73 -5.04% 1,920.03 -2.64%
24. Oct 31, 2015 59.42 10.59% 2,079.36 8.30%
25. Nov 30, 2015 48.79 0.48 -17.08% 2,080.41 0.05%
26. Dec 31, 2015 49.99 2.46% 2,043.94 -1.75%
27. Jan 31, 2016 45.34 -9.30% 1,940.24 -5.07%
28. Feb 29, 2016 50.79 0.48 13.08% 1,932.23 -0.41%
29. Mar 31, 2016 51.14 0.69% 2,059.74 6.60%
30. Apr 30, 2016 50.52 -1.21% 2,065.30 0.27%
31. May 31, 2016 54.92 0.53 9.76% 2,096.95 1.53%
32. Jun 30, 2016 53.57 -2.46% 2,098.86 0.09%
33. Jul 31, 2016 62.58 16.82% 2,173.60 3.56%
34. Aug 31, 2016 63.07 0.53 1.63% 2,170.95 -0.12%
35. Sep 30, 2016 68.50 8.61% 2,168.27 -0.12%
36. Oct 31, 2016 68.72 0.32% 2,126.15 -1.94%
37. Nov 30, 2016 68.13 0.53 -0.09% 2,198.81 3.42%
38. Dec 31, 2016 65.20 -4.30% 2,238.83 1.82%
39. Jan 31, 2017 53.43 -18.05% 2,278.87 1.79%
40. Feb 28, 2017 56.48 0.53 6.70% 2,363.64 3.72%
41. Mar 31, 2017 57.34 1.52% 2,362.72 -0.04%
42. Apr 30, 2017 53.74 -6.28% 2,384.20 0.91%
43. May 31, 2017 57.27 0.57 7.63% 2,411.80 1.16%
44. Jun 30, 2017 55.22 -3.58% 2,423.41 0.48%
45. Jul 31, 2017 53.19 -3.68% 2,470.30 1.93%
46. Aug 31, 2017 52.27 0.57 -0.66% 2,471.65 0.05%
47. Sep 30, 2017 51.84 -0.82% 2,519.36 1.93%
48. Oct 31, 2017 51.01 -1.60% 2,575.26 2.22%
49. Nov 30, 2017 66.34 0.57 31.17% 2,647.58 2.81%
50. Dec 31, 2017 64.02 -3.50% 2,673.61 0.98%
51. Jan 31, 2018 68.25 6.61% 2,823.81 5.62%
52. Feb 28, 2018 65.00 0.57 -3.93% 2,713.83 -3.89%
53. Mar 31, 2018 55.41 -14.75% 2,640.87 -2.69%
54. Apr 30, 2018 51.01 -7.94% 2,648.05 0.27%
55. May 31, 2018 58.12 0.62 15.15% 2,705.27 2.16%
56. Jun 30, 2018 56.12 -3.44% 2,718.37 0.48%
57. Jul 31, 2018 64.09 14.20% 2,816.29 3.60%
58. Aug 31, 2018 68.71 7.21% 2,901.52 3.03%
59. Sep 30, 2018 72.03 0.62 5.73% 2,913.98 0.43%
60. Oct 31, 2018 62.89 -12.69% 2,711.74 -6.94%
61. Nov 30, 2018 58.26 -7.36% 2,760.17 1.79%
62. Dec 31, 2018 56.91 0.62 -1.25% 2,506.85 -9.18%
63. Jan 31, 2019 49.52 -12.99% 2,704.10 7.87%
64. Feb 28, 2019 53.39 7.82% 2,784.49 2.97%
Average: 0.23% 0.77%
Standard deviation: 8.86% 3.21%

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 QCOM 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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VarianceQCOM 78.56
VarianceS&P 500 10.29
CovarianceQCOM, S&P 500 12.09
Correlation coefficientQCOM, S&P 5001 0.43
βQCOM2 1.17
αQCOM3 -0.67

Calculations

1 Correlation coefficientQCOM, S&P 500
= CovarianceQCOM, S&P 500 ÷ (Standard deviationQCOM × Standard deviationS&P 500)
= 12.09 ÷ (8.86 × 3.21)

2 βQCOM
= CovarianceQCOM, S&P 500 ÷ VarianceS&P 500
= 12.09 ÷ 10.29

3 αQCOM
= AverageQCOM – βQCOM × AverageS&P 500
= 0.231.17 × 0.77


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.23%
Expected rate of return on market portfolio2 E(RM) 11.55%
Systematic risk (β) of Qualcomm Inc.’s common stock βQCOM 1.17
 
Expected rate of return on Qualcomm Inc.’s common stock3 E(RQCOM) 13.18%

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(RQCOM) = RF + βQCOM [E(RM) – RF]
= 2.23% + 1.17 [11.55%2.23%]
= 13.18%