Microsoft Excel LibreOffice Calc

Boeing Co. (BA)


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 Boeing Co.’s common stock.


Rates of Return

Boeing Co., monthly rates of return

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Boeing Co. (BA) Standard & Poor’s 500 (S&P 500)
t Date PriceBA,t1 DividendBA,t1 RBA,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 125.26 1,782.59
1. Feb 28, 2014 128.92 0.73 3.50% 1,859.45 4.31%
2. Mar 31, 2014 125.49 -2.66% 1,872.34 0.69%
3. Apr 30, 2014 129.02 2.81% 1,883.95 0.62%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2018 346.76 1.71 -1.80% 2,760.17 1.79%
59. Dec 31, 2018 322.50 -7.00% 2,506.85 -9.18%
Average: 2.05% 0.63%
Standard deviation: 6.71% 3.13%
Boeing Co. (BA) Standard & Poor’s 500 (S&P 500)
t Date PriceBA,t1 DividendBA,t1 RBA,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 125.26 1,782.59
1. Feb 28, 2014 128.92 0.73 3.50% 1,859.45 4.31%
2. Mar 31, 2014 125.49 -2.66% 1,872.34 0.69%
3. Apr 30, 2014 129.02 2.81% 1,883.95 0.62%
4. May 31, 2014 135.25 0.73 5.39% 1,923.57 2.10%
5. Jun 30, 2014 127.23 -5.93% 1,960.23 1.91%
6. Jul 31, 2014 120.48 -5.31% 1,930.67 -1.51%
7. Aug 31, 2014 126.80 0.73 5.85% 2,003.37 3.77%
8. Sep 30, 2014 127.38 0.46% 1,972.29 -1.55%
9. Oct 31, 2014 124.91 -1.94% 2,018.05 2.32%
10. Nov 30, 2014 134.36 0.73 8.15% 2,067.56 2.45%
11. Dec 31, 2014 129.98 -3.26% 2,058.90 -0.42%
12. Jan 31, 2015 145.37 11.84% 1,994.99 -3.10%
13. Feb 28, 2015 150.85 0.91 4.40% 2,104.50 5.49%
14. Mar 31, 2015 150.08 -0.51% 2,067.89 -1.74%
15. Apr 30, 2015 143.34 -4.49% 2,085.51 0.85%
16. May 31, 2015 140.52 0.91 -1.33% 2,107.39 1.05%
17. Jun 30, 2015 138.72 -1.28% 2,063.11 -2.10%
18. Jul 31, 2015 144.17 3.93% 2,103.84 1.97%
19. Aug 31, 2015 130.68 0.91 -8.73% 1,972.18 -6.26%
20. Sep 30, 2015 130.95 0.21% 1,920.03 -2.64%
21. Oct 31, 2015 148.07 13.07% 2,079.36 8.30%
22. Nov 30, 2015 145.45 0.91 -1.15% 2,080.41 0.05%
23. Dec 31, 2015 144.59 -0.59% 2,043.94 -1.75%
24. Jan 31, 2016 120.13 -16.92% 1,940.24 -5.07%
25. Feb 29, 2016 118.18 1.09 -0.72% 1,932.23 -0.41%
26. Mar 31, 2016 126.94 7.41% 2,059.74 6.60%
27. Apr 30, 2016 134.80 6.19% 2,065.30 0.27%
28. May 31, 2016 126.15 1.09 -5.61% 2,096.95 1.53%
29. Jun 30, 2016 129.87 2.95% 2,098.86 0.09%
30. Jul 31, 2016 133.66 2.92% 2,173.60 3.56%
31. Aug 31, 2016 129.45 1.09 -2.33% 2,170.95 -0.12%
32. Sep 30, 2016 131.74 1.77% 2,168.27 -0.12%
33. Oct 31, 2016 142.43 8.11% 2,126.15 -1.94%
34. Nov 30, 2016 150.56 1.09 6.47% 2,198.81 3.42%
35. Dec 31, 2016 155.68 3.40% 2,238.83 1.82%
36. Jan 31, 2017 163.42 4.97% 2,278.87 1.79%
37. Feb 28, 2017 180.23 1.42 11.16% 2,363.64 3.72%
38. Mar 31, 2017 176.86 -1.87% 2,362.72 -0.04%
39. Apr 30, 2017 184.83 4.51% 2,384.20 0.91%
40. May 31, 2017 187.63 1.42 2.28% 2,411.80 1.16%
41. Jun 30, 2017 197.75 5.39% 2,423.41 0.48%
42. Jul 31, 2017 242.46 22.61% 2,470.30 1.93%
43. Aug 31, 2017 239.66 1.42 -0.57% 2,471.65 0.05%
44. Sep 30, 2017 254.21 6.07% 2,519.36 1.93%
45. Oct 31, 2017 257.98 1.48% 2,575.26 2.22%
46. Nov 30, 2017 276.80 1.42 7.85% 2,647.58 2.81%
47. Dec 31, 2017 294.91 6.54% 2,673.61 0.98%
48. Jan 31, 2018 354.37 20.16% 2,823.81 5.62%
49. Feb 28, 2018 362.21 1.71 2.69% 2,713.83 -3.89%
50. Mar 31, 2018 327.88 -9.48% 2,640.87 -2.69%
51. Apr 30, 2018 333.56 1.73% 2,648.05 0.27%
52. May 31, 2018 352.16 1.71 6.09% 2,705.27 2.16%
53. Jun 30, 2018 335.51 -4.73% 2,718.37 0.48%
54. Jul 31, 2018 356.30 6.20% 2,816.29 3.60%
55. Aug 31, 2018 342.79 1.71 -3.31% 2,901.52 3.03%
56. Sep 30, 2018 371.90 8.49% 2,913.98 0.43%
57. Oct 31, 2018 354.86 -4.58% 2,711.74 -6.94%
58. Nov 30, 2018 346.76 1.71 -1.80% 2,760.17 1.79%
59. Dec 31, 2018 322.50 -7.00% 2,506.85 -9.18%
Average: 2.05% 0.63%
Standard deviation: 6.71% 3.13%

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 BA 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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VarianceBA 45.07
VarianceS&P 500 9.77
CovarianceBA, S&P 500 11.88
Correlation coefficientBA, S&P 5001 0.57
βBA2 1.22
αBA3 1.29

Calculations

1 Correlation coefficientBA, S&P 500
= CovarianceBA, S&P 500 ÷ (Standard deviationBA × Standard deviationS&P 500)
= 11.88 ÷ (6.71 × 3.13)

2 βBA
= CovarianceBA, S&P 500 ÷ VarianceS&P 500
= 11.88 ÷ 9.77

3 αBA
= AverageBA – βBA × AverageS&P 500
= 2.051.22 × 0.63


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.35%
Expected rate of return on market portfolio2 E(RM) 11.56%
Systematic risk (β) of Boeing Co.’s common stock βBA 1.22
 
Expected rate of return on Boeing Co.’s common stock3 E(RBA) 13.55%

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).

2 See details »

3 E(RBA) = RF + βBA [E(RM) – RF]
= 2.35% + 1.22 [11.56%2.35%]
= 13.55%