Colgate-Palmolive Co. (CL)
Capital Asset Pricing Model (CAPM)
Intermediate level
Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Colgate-Palmolive Co.’s common stock.
Rates of Return
Colgate-Palmolive Co., monthly rates of return
| Colgate-Palmolive Co. (CL) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceCL,t1 | DividendCL,t1 | RCL,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2014 | 61.23 | 1,782.59 | ||||
| 1. | Feb 28, 2014 | 62.83 | 2.61% | 1,859.45 | 4.31% | |
| 2. | Mar 31, 2014 | 64.87 | 3.25% | 1,872.34 | 0.69% | |
| 3. | Apr 30, 2014 | 67.30 | 0.36 | 4.30% | 1,883.95 | 0.62% |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 58. | Nov 30, 2018 | 63.52 | 6.67% | 2,760.17 | 1.79% | |
| 59. | Dec 31, 2018 | 59.52 | -6.30% | 2,506.85 | -9.18% | |
| Average: | 0.23% | 0.63% | ||||
| Standard deviation: | 4.28% | 3.13% | ||||
| Colgate-Palmolive Co. (CL) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceCL,t1 | DividendCL,t1 | RCL,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2014 | 61.23 | 1,782.59 | ||||
| 1. | Feb 28, 2014 | 62.83 | 2.61% | 1,859.45 | 4.31% | |
| 2. | Mar 31, 2014 | 64.87 | 3.25% | 1,872.34 | 0.69% | |
| 3. | Apr 30, 2014 | 67.30 | 0.36 | 4.30% | 1,883.95 | 0.62% |
| 4. | May 31, 2014 | 68.40 | 1.63% | 1,923.57 | 2.10% | |
| 5. | Jun 30, 2014 | 68.18 | -0.32% | 1,960.23 | 1.91% | |
| 6. | Jul 31, 2014 | 63.40 | 0.36 | -6.48% | 1,930.67 | -1.51% |
| 7. | Aug 31, 2014 | 64.73 | 2.10% | 2,003.37 | 3.77% | |
| 8. | Sep 30, 2014 | 65.22 | 0.76% | 1,972.29 | -1.55% | |
| 9. | Oct 31, 2014 | 66.88 | 0.36 | 3.10% | 2,018.05 | 2.32% |
| 10. | Nov 30, 2014 | 69.59 | 4.05% | 2,067.56 | 2.45% | |
| 11. | Dec 31, 2014 | 69.19 | -0.57% | 2,058.90 | -0.42% | |
| 12. | Jan 31, 2015 | 67.52 | 0.36 | -1.89% | 1,994.99 | -3.10% |
| 13. | Feb 28, 2015 | 70.82 | 4.89% | 2,104.50 | 5.49% | |
| 14. | Mar 31, 2015 | 69.34 | -2.09% | 2,067.89 | -1.74% | |
| 15. | Apr 30, 2015 | 67.28 | 0.38 | -2.42% | 2,085.51 | 0.85% |
| 16. | May 31, 2015 | 66.79 | -0.73% | 2,107.39 | 1.05% | |
| 17. | Jun 30, 2015 | 65.41 | -2.07% | 2,063.11 | -2.10% | |
| 18. | Jul 31, 2015 | 68.02 | 0.38 | 4.57% | 2,103.84 | 1.97% |
| 19. | Aug 31, 2015 | 62.81 | -7.66% | 1,972.18 | -6.26% | |
| 20. | Sep 30, 2015 | 63.46 | 1.03% | 1,920.03 | -2.64% | |
| 21. | Oct 31, 2015 | 66.35 | 0.38 | 5.15% | 2,079.36 | 8.30% |
| 22. | Nov 30, 2015 | 65.68 | -1.01% | 2,080.41 | 0.05% | |
| 23. | Dec 31, 2015 | 66.62 | 1.43% | 2,043.94 | -1.75% | |
| 24. | Jan 31, 2016 | 67.53 | 0.38 | 1.94% | 1,940.24 | -5.07% |
| 25. | Feb 29, 2016 | 65.64 | -2.80% | 1,932.23 | -0.41% | |
| 26. | Mar 31, 2016 | 70.65 | 7.63% | 2,059.74 | 6.60% | |
| 27. | Apr 30, 2016 | 70.92 | 0.39 | 0.93% | 2,065.30 | 0.27% |
| 28. | May 31, 2016 | 70.41 | -0.72% | 2,096.95 | 1.53% | |
| 29. | Jun 30, 2016 | 73.20 | 3.96% | 2,098.86 | 0.09% | |
| 30. | Jul 31, 2016 | 74.43 | 0.39 | 2.21% | 2,173.60 | 3.56% |
| 31. | Aug 31, 2016 | 74.34 | -0.12% | 2,170.95 | -0.12% | |
| 32. | Sep 30, 2016 | 74.14 | -0.27% | 2,168.27 | -0.12% | |
| 33. | Oct 31, 2016 | 71.36 | 0.39 | -3.22% | 2,126.15 | -1.94% |
| 34. | Nov 30, 2016 | 65.23 | -8.59% | 2,198.81 | 3.42% | |
| 35. | Dec 31, 2016 | 65.44 | 0.32% | 2,238.83 | 1.82% | |
| 36. | Jan 31, 2017 | 64.58 | 0.39 | -0.72% | 2,278.87 | 1.79% |
| 37. | Feb 28, 2017 | 72.98 | 13.01% | 2,363.64 | 3.72% | |
| 38. | Mar 31, 2017 | 73.19 | 0.29% | 2,362.72 | -0.04% | |
| 39. | Apr 30, 2017 | 72.04 | 0.40 | -1.02% | 2,384.20 | 0.91% |
| 40. | May 31, 2017 | 76.36 | 6.00% | 2,411.80 | 1.16% | |
| 41. | Jun 30, 2017 | 74.13 | -2.92% | 2,423.41 | 0.48% | |
| 42. | Jul 31, 2017 | 72.20 | 0.40 | -2.06% | 2,470.30 | 1.93% |
| 43. | Aug 31, 2017 | 71.64 | -0.78% | 2,471.65 | 0.05% | |
| 44. | Sep 30, 2017 | 72.85 | 1.69% | 2,519.36 | 1.93% | |
| 45. | Oct 31, 2017 | 70.45 | 0.40 | -2.75% | 2,575.26 | 2.22% |
| 46. | Nov 30, 2017 | 72.45 | 2.84% | 2,647.58 | 2.81% | |
| 47. | Dec 31, 2017 | 75.45 | 4.14% | 2,673.61 | 0.98% | |
| 48. | Jan 31, 2018 | 74.24 | 0.40 | -1.07% | 2,823.81 | 5.62% |
| 49. | Feb 28, 2018 | 68.97 | -7.10% | 2,713.83 | -3.89% | |
| 50. | Mar 31, 2018 | 71.68 | 3.93% | 2,640.87 | -2.69% | |
| 51. | Apr 30, 2018 | 65.23 | 0.42 | -8.41% | 2,648.05 | 0.27% |
| 52. | May 31, 2018 | 63.09 | -3.28% | 2,705.27 | 2.16% | |
| 53. | Jun 30, 2018 | 64.81 | 2.73% | 2,718.37 | 0.48% | |
| 54. | Jul 31, 2018 | 67.01 | 0.42 | 4.04% | 2,816.29 | 3.60% |
| 55. | Aug 31, 2018 | 66.41 | -0.90% | 2,901.52 | 3.03% | |
| 56. | Sep 30, 2018 | 66.95 | 0.81% | 2,913.98 | 0.43% | |
| 57. | Oct 31, 2018 | 59.55 | 0.42 | -10.43% | 2,711.74 | -6.94% |
| 58. | Nov 30, 2018 | 63.52 | 6.67% | 2,760.17 | 1.79% | |
| 59. | Dec 31, 2018 | 59.52 | -6.30% | 2,506.85 | -9.18% | |
| Average: | 0.23% | 0.63% | ||||
| Standard deviation: | 4.28% | 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 CL during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Systematic Risk (β) Estimation
| VarianceCL | 18.28 |
| VarianceS&P 500 | 9.77 |
| CovarianceCL, S&P 500 | 7.20 |
| Correlation coefficientCL, S&P 5001 | 0.54 |
| βCL2 | 0.74 |
| αCL3 | -0.24 |
Calculations
1 Correlation coefficientCL, S&P 500
= CovarianceCL, S&P 500 ÷ (Standard deviationCL × Standard deviationS&P 500)
= 7.20 ÷ (4.28 × 3.13)
2 βCL
= CovarianceCL, S&P 500 ÷ VarianceS&P 500
= 7.20 ÷ 9.77
3 αCL
= AverageCL – βCL × AverageS&P 500
= 0.23 – 0.74 × 0.63
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | 2.07% |
| Expected rate of return on market portfolio2 | E(RM) | 11.21% |
| Systematic risk (β) of Colgate-Palmolive Co.’s common stock | βCL | 0.74 |
| Expected rate of return on Colgate-Palmolive Co.’s common stock3 | E(RCL) | 8.81% |
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).
3 E(RCL) = RF + βCL [E(RM) – RF]
= 2.07% + 0.74 [11.21% – 2.07%]
= 8.81%