Best Buy Co. Inc. (NYSE:BBY)

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 Best Buy Co. Inc. common stock.

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

Rates of Return

Best Buy Co. Inc., monthly rates of return

		Best Buy Co. Inc. (BBY)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_BBY,t¹	Dividend_BBY,t¹	R_BBY,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Feb 29, 2016	$32.39			1,932.23
1.	Mar 31, 2016	$32.44	$0.73	2.41%	2,059.74	6.60%
2.	Apr 30, 2016	$32.08		-1.11%	2,065.30	0.27%
3.	May 31, 2016	$32.17		0.28%	2,096.95	1.53%
.	.	.	.	.	.	.
.	.	.	.	.	.	.
.	.	.	.	.	.	.
70.	Dec 31, 2021	$101.60	$0.70	-4.27%	4,766.18	4.36%
71.	Jan 31, 2022	$99.28		-2.28%	4,515.55	-5.26%
Average (R):				2.32%		1.29%
Standard deviation:				9.91%		4.25%

		Best Buy Co. Inc. (BBY)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_BBY,t¹	Dividend_BBY,t¹	R_BBY,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Feb 29, 2016	$32.39			1,932.23
1.	Mar 31, 2016	$32.44	$0.73	2.41%	2,059.74	6.60%
2.	Apr 30, 2016	$32.08		-1.11%	2,065.30	0.27%
3.	May 31, 2016	$32.17		0.28%	2,096.95	1.53%
4.	Jun 30, 2016	$30.60	$0.28	-4.01%	2,098.86	0.09%
5.	Jul 31, 2016	$33.60		9.80%	2,173.60	3.56%
6.	Aug 31, 2016	$38.48		14.52%	2,170.95	-0.12%
7.	Sep 30, 2016	$38.18	$0.28	-0.05%	2,168.27	-0.12%
8.	Oct 31, 2016	$38.91		1.91%	2,126.15	-1.94%
9.	Nov 30, 2016	$45.70		17.45%	2,198.81	3.42%
10.	Dec 31, 2016	$42.67	$0.28	-6.02%	2,238.83	1.82%
11.	Jan 31, 2017	$44.52		4.34%	2,278.87	1.79%
12.	Feb 28, 2017	$44.13		-0.88%	2,363.64	3.72%
13.	Mar 31, 2017	$49.15	$0.34	12.15%	2,362.72	-0.04%
14.	Apr 30, 2017	$51.81		5.41%	2,384.20	0.91%
15.	May 31, 2017	$59.39		14.63%	2,411.80	1.16%
16.	Jun 30, 2017	$57.33	$0.34	-2.90%	2,423.41	0.48%
17.	Jul 31, 2017	$58.34		1.76%	2,470.30	1.93%
18.	Aug 31, 2017	$54.26		-6.99%	2,471.65	0.05%
19.	Sep 30, 2017	$56.96	$0.34	5.60%	2,519.36	1.93%
20.	Oct 31, 2017	$55.98		-1.72%	2,575.26	2.22%
21.	Nov 30, 2017	$59.61		6.48%	2,647.58	2.81%
22.	Dec 31, 2017	$68.47	$0.34	15.43%	2,673.61	0.98%
23.	Jan 31, 2018	$73.06		6.70%	2,823.81	5.62%
24.	Feb 28, 2018	$72.44		-0.85%	2,713.83	-3.89%
25.	Mar 31, 2018	$69.99	$0.45	-2.76%	2,640.87	-2.69%
26.	Apr 30, 2018	$76.53		9.34%	2,648.05	0.27%
27.	May 31, 2018	$68.25		-10.82%	2,705.27	2.16%
28.	Jun 30, 2018	$74.58	$0.45	9.93%	2,718.37	0.48%
29.	Jul 31, 2018	$75.03		0.60%	2,816.29	3.60%
30.	Aug 31, 2018	$79.56		6.04%	2,901.52	3.03%
31.	Sep 30, 2018	$79.36	$0.45	0.31%	2,913.98	0.43%
32.	Oct 31, 2018	$70.16		-11.59%	2,711.74	-6.94%
33.	Nov 30, 2018	$64.59		-7.94%	2,760.17	1.79%
34.	Dec 31, 2018	$52.96	$0.45	-17.31%	2,506.85	-9.18%
35.	Jan 31, 2019	$59.24		11.86%	2,704.10	7.87%
36.	Feb 28, 2019	$68.84		16.21%	2,784.49	2.97%
37.	Mar 31, 2019	$71.06	$0.50	3.95%	2,834.40	1.79%
38.	Apr 30, 2019	$74.41		4.71%	2,945.83	3.93%
39.	May 31, 2019	$62.67		-15.78%	2,752.06	-6.58%
40.	Jun 30, 2019	$69.73	$0.50	12.06%	2,941.76	6.89%
41.	Jul 31, 2019	$76.53		9.75%	2,980.38	1.31%
42.	Aug 31, 2019	$63.65		-16.83%	2,926.46	-1.81%
43.	Sep 30, 2019	$68.99	$0.50	9.18%	2,976.74	1.72%
44.	Oct 31, 2019	$71.83		4.12%	3,037.56	2.04%
45.	Nov 30, 2019	$80.64		12.27%	3,140.98	3.40%
46.	Dec 31, 2019	$87.80	$0.50	9.50%	3,230.78	2.86%
47.	Jan 31, 2020	$84.69		-3.54%	3,225.52	-0.16%
48.	Feb 29, 2020	$75.65		-10.67%	2,954.22	-8.41%
49.	Mar 31, 2020	$57.00	$0.55	-23.93%	2,584.59	-12.51%
50.	Apr 30, 2020	$76.73		34.61%	2,912.43	12.68%
51.	May 31, 2020	$78.09		1.77%	3,044.31	4.53%
52.	Jun 30, 2020	$87.27	$0.55	12.46%	3,100.29	1.84%
53.	Jul 31, 2020	$99.59		14.12%	3,271.12	5.51%
54.	Aug 31, 2020	$110.91		11.37%	3,500.31	7.01%
55.	Sep 30, 2020	$111.29	$0.55	0.84%	3,363.00	-3.92%
56.	Oct 31, 2020	$111.55		0.23%	3,269.96	-2.77%
57.	Nov 30, 2020	$108.80		-2.47%	3,621.63	10.75%
58.	Dec 31, 2020	$99.79	$0.55	-7.78%	3,756.07	3.71%
59.	Jan 31, 2021	$108.82		9.05%	3,714.24	-1.11%
60.	Feb 28, 2021	$100.35		-7.78%	3,811.15	2.61%
61.	Mar 31, 2021	$114.81	$0.70	15.11%	3,972.89	4.24%
62.	Apr 30, 2021	$116.27		1.27%	4,181.17	5.24%
63.	May 31, 2021	$116.24		-0.03%	4,204.11	0.55%
64.	Jun 30, 2021	$114.98	$0.70	-0.48%	4,297.50	2.22%
65.	Jul 31, 2021	$112.35		-2.29%	4,395.26	2.27%
66.	Aug 31, 2021	$116.51		3.70%	4,522.68	2.90%
67.	Sep 30, 2021	$105.71	$0.70	-8.67%	4,307.54	-4.76%
68.	Oct 31, 2021	$122.24		15.64%	4,605.38	6.91%
69.	Nov 30, 2021	$106.86		-12.58%	4,567.00	-0.83%
70.	Dec 31, 2021	$101.60	$0.70	-4.27%	4,766.18	4.36%
71.	Jan 31, 2022	$99.28		-2.28%	4,515.55	-5.26%
Average (R):				2.32%		1.29%
Standard deviation:				9.91%		4.25%

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 BBY during period t

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

Variance and Covariance

Best Buy Co. Inc., calculation of variance and covariance of returns

t	Date	R_BBY,t	R_{S&P 500,t}	(R_BBY,t–R_BBY)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_BBY,t–R_BBY)×(R_{S&P 500,t}–R_{S&P 500})
1.	Mar 31, 2016	2.41%	6.60%	0.01	28.16	0.48
2.	Apr 30, 2016	-1.11%	0.27%	11.75	1.05	3.50
3.	May 31, 2016	0.28%	1.53%	4.15	0.06	-0.49
.	.	.	.	.	.	.
.	.	.	.	.	.	.
.	.	.	.	.	.	.
70.	Dec 31, 2021	-4.27%	4.36%	43.37	9.42	-20.21
71.	Jan 31, 2022	-2.28%	-5.26%	21.17	42.91	30.14
Total (Σ):				6,868.63	1,262.70	1,873.35

t	Date	R_BBY,t	R_{S&P 500,t}	(R_BBY,t–R_BBY)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_BBY,t–R_BBY)×(R_{S&P 500,t}–R_{S&P 500})
1.	Mar 31, 2016	2.41%	6.60%	0.01	28.16	0.48
2.	Apr 30, 2016	-1.11%	0.27%	11.75	1.05	3.50
3.	May 31, 2016	0.28%	1.53%	4.15	0.06	-0.49
4.	Jun 30, 2016	-4.01%	0.09%	40.04	1.44	7.60
5.	Jul 31, 2016	9.80%	3.56%	56.04	5.15	16.98
6.	Aug 31, 2016	14.52%	-0.12%	148.98	2.00	-17.26
7.	Sep 30, 2016	-0.05%	-0.12%	5.62	2.00	3.36
8.	Oct 31, 2016	1.91%	-1.94%	0.16	10.46	1.31
9.	Nov 30, 2016	17.45%	3.42%	228.99	4.52	32.16
10.	Dec 31, 2016	-6.02%	1.82%	69.48	0.28	-4.40
11.	Jan 31, 2017	4.34%	1.79%	4.07	0.25	1.00
12.	Feb 28, 2017	-0.88%	3.72%	10.20	5.89	-7.75
13.	Mar 31, 2017	12.15%	-0.04%	96.59	1.77	-13.08
14.	Apr 30, 2017	5.41%	0.91%	9.57	0.15	-1.19
15.	May 31, 2017	14.63%	1.16%	151.60	0.02	-1.66
16.	Jun 30, 2017	-2.90%	0.48%	27.19	0.66	4.23
17.	Jul 31, 2017	1.76%	1.93%	0.31	0.41	-0.36
18.	Aug 31, 2017	-6.99%	0.05%	86.70	1.53	11.52
19.	Sep 30, 2017	5.60%	1.93%	10.79	0.41	2.10
20.	Oct 31, 2017	-1.72%	2.22%	16.31	0.86	-3.74
21.	Nov 30, 2017	6.48%	2.81%	17.36	2.30	6.32
22.	Dec 31, 2017	15.43%	0.98%	172.02	0.10	-4.05
23.	Jan 31, 2018	6.70%	5.62%	19.23	18.71	18.97
24.	Feb 28, 2018	-0.85%	-3.89%	10.03	26.90	16.43
25.	Mar 31, 2018	-2.76%	-2.69%	25.80	15.85	20.22
26.	Apr 30, 2018	9.34%	0.27%	49.37	1.04	-7.17
27.	May 31, 2018	-10.82%	2.16%	172.59	0.75	-11.41
28.	Jun 30, 2018	9.93%	0.48%	58.00	0.65	-6.15
29.	Jul 31, 2018	0.60%	3.60%	2.94	5.34	-3.96
30.	Aug 31, 2018	6.04%	3.03%	13.84	3.01	6.45
31.	Sep 30, 2018	0.31%	0.43%	4.02	0.74	1.73
32.	Oct 31, 2018	-11.59%	-6.94%	193.51	67.78	114.52
33.	Nov 30, 2018	-7.94%	1.79%	105.21	0.24	-5.06
34.	Dec 31, 2018	-17.31%	-9.18%	385.23	109.62	205.50
35.	Jan 31, 2019	11.86%	7.87%	91.01	43.25	62.74
36.	Feb 28, 2019	16.21%	2.97%	192.86	2.82	23.34
37.	Mar 31, 2019	3.95%	1.79%	2.67	0.25	0.82
38.	Apr 30, 2019	4.71%	3.93%	5.74	6.96	6.32
39.	May 31, 2019	-15.78%	-6.58%	327.44	61.94	142.41
40.	Jun 30, 2019	12.06%	6.89%	94.97	31.37	54.58
41.	Jul 31, 2019	9.75%	1.31%	55.26	0.00	0.15
42.	Aug 31, 2019	-16.83%	-1.81%	366.65	9.62	59.39
43.	Sep 30, 2019	9.18%	1.72%	47.02	0.18	2.92
44.	Oct 31, 2019	4.12%	2.04%	3.23	0.56	1.35
45.	Nov 30, 2019	12.27%	3.40%	98.94	4.46	21.01
46.	Dec 31, 2019	9.50%	2.86%	51.57	2.45	11.25
47.	Jan 31, 2020	-3.54%	-0.16%	34.34	2.12	8.53
48.	Feb 29, 2020	-10.67%	-8.41%	168.80	94.15	126.07
49.	Mar 31, 2020	-23.93%	-12.51%	688.75	190.56	362.28
50.	Apr 30, 2020	34.61%	12.68%	1,043.04	129.78	367.92
51.	May 31, 2020	1.77%	4.53%	0.30	10.47	-1.77
52.	Jun 30, 2020	12.46%	1.84%	102.86	0.30	5.54
53.	Jul 31, 2020	14.12%	5.51%	139.22	17.79	49.77
54.	Aug 31, 2020	11.37%	7.01%	81.88	32.65	51.71
55.	Sep 30, 2020	0.84%	-3.92%	2.19	27.20	7.72
56.	Oct 31, 2020	0.23%	-2.77%	4.34	16.47	8.46
57.	Nov 30, 2020	-2.47%	10.75%	22.88	89.54	-45.26
58.	Dec 31, 2020	-7.78%	3.71%	101.88	5.86	-24.43
59.	Jan 31, 2021	9.05%	-1.11%	45.31	5.79	-16.19
60.	Feb 28, 2021	-7.78%	2.61%	102.04	1.73	-13.30
61.	Mar 31, 2021	15.11%	4.24%	163.56	8.71	37.75
62.	Apr 30, 2021	1.27%	5.24%	1.09	15.60	-4.13
63.	May 31, 2021	-0.03%	0.55%	5.49	0.55	1.74
64.	Jun 30, 2021	-0.48%	2.22%	7.84	0.86	-2.60
65.	Jul 31, 2021	-2.29%	2.27%	21.21	0.97	-4.53
66.	Aug 31, 2021	3.70%	2.90%	1.92	2.58	2.22
67.	Sep 30, 2021	-8.67%	-4.76%	120.71	36.59	66.46
68.	Oct 31, 2021	15.64%	6.91%	177.40	31.61	74.88
69.	Nov 30, 2021	-12.58%	-0.83%	222.00	4.52	31.67
70.	Dec 31, 2021	-4.27%	4.36%	43.37	9.42	-20.21
71.	Jan 31, 2022	-2.28%	-5.26%	21.17	42.91	30.14
Total (Σ):				6,868.63	1,262.70	1,873.35

Show all

Variance_BBY = Σ(R_BBY,t–R_BBY)² ÷ (71 – 1)
= 6,868.63 ÷ (71 – 1)
= 98.12

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (71 – 1)
= 1,262.70 ÷ (71 – 1)
= 18.04

Covariance_{BBY, S&P 500} = Σ(R_BBY,t–R_BBY)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (71 – 1)
= 1,873.35 ÷ (71 – 1)
= 26.76

Systematic Risk (β) Estimation

Variance_BBY	98.12
Variance_{S&P 500}	18.04
Covariance_{BBY, S&P 500}	26.76
Correlation coefficient_{BBY, S&P 500}¹	0.64
β_BBY²	1.48
α_BBY³	0.40%

Calculations

¹ Correlation coefficient_{BBY, S&P 500}
= Covariance_{BBY, S&P 500} ÷ (Standard deviation_BBY × Standard deviation_{S&P 500})
= 26.76 ÷ (9.91% × 4.25%)
= 0.64

² β_BBY
= Covariance_{BBY, S&P 500} ÷ Variance_{S&P 500}
= 26.76 ÷ 18.04
= 1.48

³ α_BBY
= Average_BBY – β_BBY × Average_{S&P 500}
= 2.32% – 1.48 × 1.29%
= 0.40%

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)	13.52%
Systematic risk (β) of Best Buy Co. Inc. common stock	β_BBY	1.48

Expected rate of return on Best Buy Co. Inc. common stock³	E(R_BBY)	17.71%

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_BBY) = R_F + β_BBY [E(R_M) – R_F]
= 4.86% + 1.48 [13.52% – 4.86%]
= 17.71%