Microsoft Excel LibreOffice Calc

Chevron Corp. (CVX)


Capital Asset Pricing Model (CAPM)

Difficulty: Intermediate

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


Rates of Return

Chevron Corp., monthly rates of return

Microsoft Excel LibreOffice Calc
Chevron Corp. (CVX) Standard & Poor’s 500 (S&P 500)
t Date PriceCVX,t1 DividendCVX,t1 RCVX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 111.63 1,782.59
1. Feb 28, 2014 115.33 1.00 4.21% 1,859.45 4.31%
2. Mar 31, 2014 118.91 3.10% 1,872.34 0.69%
3. Apr 30, 2014 125.52 5.56% 1,883.95 0.62%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2018 118.94 1.12 7.53% 2,760.17 1.79%
59. Dec 31, 2018 108.79 -8.53% 2,506.85 -9.18%
Average: 0.45% 0.63%
Standard Deviation: 5.65% 3.13%
Chevron Corp. (CVX) Standard & Poor’s 500 (S&P 500)
t Date PriceCVX,t1 DividendCVX,t1 RCVX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 111.63 1,782.59
1. Feb 28, 2014 115.33 1.00 4.21% 1,859.45 4.31%
2. Mar 31, 2014 118.91 3.10% 1,872.34 0.69%
3. Apr 30, 2014 125.52 5.56% 1,883.95 0.62%
4. May 31, 2014 122.79 1.07 -1.32% 1,923.57 2.10%
5. Jun 30, 2014 130.55 6.32% 1,960.23 1.91%
6. Jul 31, 2014 129.24 -1.00% 1,930.67 -1.51%
7. Aug 31, 2014 129.45 1.07 0.99% 2,003.37 3.77%
8. Sep 30, 2014 119.32 -7.83% 1,972.29 -1.55%
9. Oct 31, 2014 119.95 0.53% 2,018.05 2.32%
10. Nov 30, 2014 108.87 1.07 -8.35% 2,067.56 2.45%
11. Dec 31, 2014 112.18 3.04% 2,058.90 -0.42%
12. Jan 31, 2015 102.53 -8.60% 1,994.99 -3.10%
13. Feb 28, 2015 106.68 1.07 5.09% 2,104.50 5.49%
14. Mar 31, 2015 104.98 -1.59% 2,067.89 -1.74%
15. Apr 30, 2015 111.06 5.79% 2,085.51 0.85%
16. May 31, 2015 103.00 1.07 -6.29% 2,107.39 1.05%
17. Jun 30, 2015 96.47 -6.34% 2,063.11 -2.10%
18. Jul 31, 2015 88.48 -8.28% 2,103.84 1.97%
19. Aug 31, 2015 80.99 1.07 -7.26% 1,972.18 -6.26%
20. Sep 30, 2015 78.88 -2.61% 1,920.03 -2.64%
21. Oct 31, 2015 90.88 15.21% 2,079.36 8.30%
22. Nov 30, 2015 91.32 1.07 1.66% 2,080.41 0.05%
23. Dec 31, 2015 89.96 -1.49% 2,043.94 -1.75%
24. Jan 31, 2016 86.47 -3.88% 1,940.24 -5.07%
25. Feb 29, 2016 83.44 1.07 -2.27% 1,932.23 -0.41%
26. Mar 31, 2016 95.40 14.33% 2,059.74 6.60%
27. Apr 30, 2016 102.18 7.11% 2,065.30 0.27%
28. May 31, 2016 101.00 1.07 -0.11% 2,096.95 1.53%
29. Jun 30, 2016 104.83 3.79% 2,098.86 0.09%
30. Jul 31, 2016 102.48 -2.24% 2,173.60 3.56%
31. Aug 31, 2016 100.58 1.07 -0.81% 2,170.95 -0.12%
32. Sep 30, 2016 102.92 2.33% 2,168.27 -0.12%
33. Oct 31, 2016 104.75 1.78% 2,126.15 -1.94%
34. Nov 30, 2016 111.56 1.08 7.53% 2,198.81 3.42%
35. Dec 31, 2016 117.70 5.50% 2,238.83 1.82%
36. Jan 31, 2017 111.35 -5.40% 2,278.87 1.79%
37. Feb 28, 2017 112.50 1.08 2.00% 2,363.64 3.72%
38. Mar 31, 2017 107.37 -4.56% 2,362.72 -0.04%
39. Apr 30, 2017 106.70 -0.62% 2,384.20 0.91%
40. May 31, 2017 103.48 1.08 -2.01% 2,411.80 1.16%
41. Jun 30, 2017 104.33 0.82% 2,423.41 0.48%
42. Jul 31, 2017 109.19 4.66% 2,470.30 1.93%
43. Aug 31, 2017 107.62 1.08 -0.45% 2,471.65 0.05%
44. Sep 30, 2017 117.50 9.18% 2,519.36 1.93%
45. Oct 31, 2017 115.89 -1.37% 2,575.26 2.22%
46. Nov 30, 2017 118.99 1.08 3.61% 2,647.58 2.81%
47. Dec 31, 2017 125.19 5.21% 2,673.61 0.98%
48. Jan 31, 2018 125.35 0.13% 2,823.81 5.62%
49. Feb 28, 2018 111.92 1.12 -9.82% 2,713.83 -3.89%
50. Mar 31, 2018 114.04 1.89% 2,640.87 -2.69%
51. Apr 30, 2018 125.11 9.71% 2,648.05 0.27%
52. May 31, 2018 124.30 1.12 0.25% 2,705.27 2.16%
53. Jun 30, 2018 126.43 1.71% 2,718.37 0.48%
54. Jul 31, 2018 126.27 -0.13% 2,816.29 3.60%
55. Aug 31, 2018 118.46 1.12 -5.30% 2,901.52 3.03%
56. Sep 30, 2018 122.28 3.22% 2,913.98 0.43%
57. Oct 31, 2018 111.65 -8.69% 2,711.74 -6.94%
58. Nov 30, 2018 118.94 1.12 7.53% 2,760.17 1.79%
59. Dec 31, 2018 108.79 -8.53% 2,506.85 -9.18%
Average: 0.45% 0.63%
Standard Deviation: 5.65% 3.13%

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

2 Rate of return on common stock of CVX 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
VarianceCVX 31.90
VarianceS&P 500 9.77
CovarianceCVX, S&P 500 10.31
Correlation CoefficientCVX, S&P 5001 0.58
βCVX2 1.06
αCVX3 -0.21

Calculations

1 CovarianceCVX, S&P 500 ÷ (Standard DeviationCVX × Standard DeviationS&P 500)
= 10.31 ÷ (5.65 × 3.13)

2 CovarianceCVX, S&P 500 ÷ VarianceS&P 500
= 10.31 ÷ 9.77

3 AverageCVX – βCVX × AverageS&P 500
= 0.451.06 × 0.63


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.66%
Expected rate of return on market portfolio2 E(RM) 12.02%
Systematic risk (β) of Chevron Corp.’s common stock βCVX 1.06
Expected rate of return on Chevron Corp.’s common stock3 E(RCVX) 12.53%

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(RCVX) = RF + βCVX [E(RM) – RF]
= 2.66% + 1.06 [12.02%2.66%]
= 12.53%