Microsoft Excel LibreOffice Calc

Capital Asset Pricing Model (CAPM)

Difficulty: Intermediate


Rates of Return

AbbVie Inc., monthly rates of return

Microsoft Excel LibreOffice Calc
AbbVie Inc. (ABBV) Standard & Poor's 500 (S&P 500)
t Date PriceABBV,t1 DividendABBV,t1 RABBV,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2013 36.69 1,498.11
1. Feb 28, 2013 36.92 0.63% 1,514.68 1.11%
2. Mar 31, 2013 40.78 10.46% 1,569.19 3.60%
3. Apr 30, 2013 46.05 0.40 13.90% 1,597.57 1.81%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2017 96.92 7.39% 2,647.58 2.81%
59. Dec 31, 2017 96.71 -0.22% 2,673.61 0.98%
Average: 2.14% 1.02%
Standard Deviation: 6.53% 2.71%
AbbVie Inc. (ABBV) Standard & Poor's 500 (S&P 500)
t Date PriceABBV,t1 DividendABBV,t1 RABBV,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2013 36.69 1,498.11
1. Feb 28, 2013 36.92 0.63% 1,514.68 1.11%
2. Mar 31, 2013 40.78 10.46% 1,569.19 3.60%
3. Apr 30, 2013 46.05 0.40 13.90% 1,597.57 1.81%
4. May 31, 2013 42.69 -7.30% 1,630.74 2.08%
5. Jun 30, 2013 41.34 -3.16% 1,606.28 -1.50%
6. Jul 31, 2013 45.48 0.40 10.98% 1,685.73 4.95%
7. Aug 31, 2013 42.61 -6.31% 1,632.97 -3.13%
8. Sep 30, 2013 44.73 4.98% 1,681.55 2.97%
9. Oct 31, 2013 48.45 0.40 9.21% 1,756.54 4.46%
10. Nov 30, 2013 48.45 0.00% 1,805.81 2.80%
11. Dec 31, 2013 52.81 9.00% 1,848.36 2.36%
12. Jan 31, 2014 49.23 0.40 -6.02% 1,782.59 -3.56%
13. Feb 28, 2014 50.91 3.41% 1,859.45 4.31%
14. Mar 31, 2014 51.40 0.96% 1,872.34 0.69%
15. Apr 30, 2014 52.08 0.42 2.14% 1,883.95 0.62%
16. May 31, 2014 54.33 4.32% 1,923.57 2.10%
17. Jun 30, 2014 56.44 3.88% 1,960.23 1.91%
18. Jul 31, 2014 52.34 0.42 -6.52% 1,930.67 -1.51%
19. Aug 31, 2014 55.28 5.62% 2,003.37 3.77%
20. Sep 30, 2014 57.76 4.49% 1,972.29 -1.55%
21. Oct 31, 2014 63.46 0.42 10.60% 2,018.05 2.32%
22. Nov 30, 2014 69.20 9.05% 2,067.56 2.45%
23. Dec 31, 2014 65.44 -5.43% 2,058.90 -0.42%
24. Jan 31, 2015 60.35 0.49 -7.03% 1,994.99 -3.10%
25. Feb 28, 2015 60.50 0.25% 2,104.50 5.49%
26. Mar 31, 2015 58.54 -3.24% 2,067.89 -1.74%
27. Apr 30, 2015 64.66 0.51 11.33% 2,085.51 0.85%
28. May 31, 2015 66.59 2.98% 2,107.39 1.05%
29. Jun 30, 2015 67.19 0.90% 2,063.11 -2.10%
30. Jul 31, 2015 70.01 0.51 4.96% 2,103.84 1.97%
31. Aug 31, 2015 62.41 -10.86% 1,972.18 -6.26%
32. Sep 30, 2015 54.41 -12.82% 1,920.03 -2.64%
33. Oct 31, 2015 59.55 0.51 10.38% 2,079.36 8.30%
34. Nov 30, 2015 58.15 -2.35% 2,080.41 0.05%
35. Dec 31, 2015 59.24 1.87% 2,043.94 -1.75%
36. Jan 31, 2016 54.90 0.57 -6.36% 1,940.24 -5.07%
37. Feb 29, 2016 54.61 -0.53% 1,932.23 -0.41%
38. Mar 31, 2016 57.12 4.60% 2,059.74 6.60%
39. Apr 30, 2016 61.00 0.57 7.79% 2,065.30 0.27%
40. May 31, 2016 62.93 3.16% 2,096.95 1.53%
41. Jun 30, 2016 61.91 -1.62% 2,098.86 0.09%
42. Jul 31, 2016 66.23 0.57 7.90% 2,173.60 3.56%
43. Aug 31, 2016 64.10 -3.22% 2,170.95 -0.12%
44. Sep 30, 2016 63.07 -1.61% 2,168.27 -0.12%
45. Oct 31, 2016 55.78 0.57 -10.65% 2,126.15 -1.94%
46. Nov 30, 2016 60.80 9.00% 2,198.81 3.42%
47. Dec 31, 2016 62.62 2.99% 2,238.83 1.82%
48. Jan 31, 2017 61.11 0.64 -1.39% 2,278.87 1.79%
49. Feb 28, 2017 61.84 1.19% 2,363.64 3.72%
50. Mar 31, 2017 65.16 5.37% 2,362.72 -0.04%
51. Apr 30, 2017 65.94 0.64 2.18% 2,384.20 0.91%
52. May 31, 2017 66.02 0.12% 2,411.80 1.16%
53. Jun 30, 2017 72.51 9.83% 2,423.41 0.48%
54. Jul 31, 2017 69.91 0.64 -2.70% 2,470.30 1.93%
55. Aug 31, 2017 75.30 7.71% 2,471.65 0.05%
56. Sep 30, 2017 88.86 18.01% 2,519.36 1.93%
57. Oct 31, 2017 90.25 0.64 2.28% 2,575.26 2.22%
58. Nov 30, 2017 96.92 7.39% 2,647.58 2.81%
59. Dec 31, 2017 96.71 -0.22% 2,673.61 0.98%
Average: 2.14% 1.02%
Standard Deviation: 6.53% 2.71%

Show All

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

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

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


Systematic Risk (β) Estimation

Microsoft Excel LibreOffice Calc
VarianceABBV 42.61
VarianceS&P 500 7.32
CovarianceABBV, S&P 500 11.31
Correlation CoefficientABBV, S&P 5001 0.64
βABBV2 1.55
αABBV3 0.56

Calculations

1 CovarianceABBV, S&P 500 ÷ (Standard DeviationABBV × Standard DeviationS&P 500)
= 11.31 ÷ (6.53 × 2.71)

2 CovarianceABBV, S&P 500 ÷ VarianceS&P 500
= 11.31 ÷ 7.32

3 AverageABBV – βABBV × AverageS&P 500
= 2.141.55 × 1.02


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF 3.09%
Expected rate of return on market portfolio2 E(RM) 12.44%
Systematic risk (β) of AbbVie's common stock βABBV 1.55
Expected rate of return on AbbVie's common stock3 E(RABBV) 17.55%

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).

Calculations

2 See Details »

3 E(RABBV) = RF + βABBV [E(RM) – RF]
= 3.09% + 1.55 [12.44%3.09%]
= 17.55%