Stock Analysis on Net
Stock Analysis on Net

Colgate-Palmolive Co. (NYSE:CL)

Capital Asset Pricing Model (CAPM)

Microsoft Excel LibreOffice Calc

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

Microsoft Excel LibreOffice Calc
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, 2016 $67.53 1,940.24
1. Feb 29, 2016 $65.64 -2.80% 1,932.23 -0.41%
2. Mar 31, 2016 $70.65 7.63% 2,059.74 6.60%
3. Apr 30, 2016 $70.92 $0.39 0.93% 2,065.30 0.27%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2020 $85.64 8.56% 3,621.63 10.75%
59. Dec 31, 2020 $85.51 -0.15% 3,756.07 3.71%
Average (R): 0.70% 1.22%
Standard deviation: 4.77% 4.36%
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, 2016 $67.53 1,940.24
1. Feb 29, 2016 $65.64 -2.80% 1,932.23 -0.41%
2. Mar 31, 2016 $70.65 7.63% 2,059.74 6.60%
3. Apr 30, 2016 $70.92 $0.39 0.93% 2,065.30 0.27%
4. May 31, 2016 $70.41 -0.72% 2,096.95 1.53%
5. Jun 30, 2016 $73.20 3.96% 2,098.86 0.09%
6. Jul 31, 2016 $74.43 $0.39 2.21% 2,173.60 3.56%
7. Aug 31, 2016 $74.34 -0.12% 2,170.95 -0.12%
8. Sep 30, 2016 $74.14 -0.27% 2,168.27 -0.12%
9. Oct 31, 2016 $71.36 $0.39 -3.22% 2,126.15 -1.94%
10. Nov 30, 2016 $65.23 -8.59% 2,198.81 3.42%
11. Dec 31, 2016 $65.44 0.32% 2,238.83 1.82%
12. Jan 31, 2017 $64.58 $0.39 -0.72% 2,278.87 1.79%
13. Feb 28, 2017 $72.98 13.01% 2,363.64 3.72%
14. Mar 31, 2017 $73.19 0.29% 2,362.72 -0.04%
15. Apr 30, 2017 $72.04 $0.40 -1.02% 2,384.20 0.91%
16. May 31, 2017 $76.36 6.00% 2,411.80 1.16%
17. Jun 30, 2017 $74.13 -2.92% 2,423.41 0.48%
18. Jul 31, 2017 $72.20 $0.40 -2.06% 2,470.30 1.93%
19. Aug 31, 2017 $71.64 -0.78% 2,471.65 0.05%
20. Sep 30, 2017 $72.85 1.69% 2,519.36 1.93%
21. Oct 31, 2017 $70.45 $0.40 -2.75% 2,575.26 2.22%
22. Nov 30, 2017 $72.45 2.84% 2,647.58 2.81%
23. Dec 31, 2017 $75.45 4.14% 2,673.61 0.98%
24. Jan 31, 2018 $74.24 $0.40 -1.07% 2,823.81 5.62%
25. Feb 28, 2018 $68.97 -7.10% 2,713.83 -3.89%
26. Mar 31, 2018 $71.68 3.93% 2,640.87 -2.69%
27. Apr 30, 2018 $65.23 $0.42 -8.41% 2,648.05 0.27%
28. May 31, 2018 $63.09 -3.28% 2,705.27 2.16%
29. Jun 30, 2018 $64.81 2.73% 2,718.37 0.48%
30. Jul 31, 2018 $67.01 $0.42 4.04% 2,816.29 3.60%
31. Aug 31, 2018 $66.41 -0.90% 2,901.52 3.03%
32. Sep 30, 2018 $66.95 0.81% 2,913.98 0.43%
33. Oct 31, 2018 $59.55 $0.42 -10.43% 2,711.74 -6.94%
34. Nov 30, 2018 $63.52 6.67% 2,760.17 1.79%
35. Dec 31, 2018 $59.52 -6.30% 2,506.85 -9.18%
36. Jan 31, 2019 $64.68 $0.42 9.38% 2,704.10 7.87%
37. Feb 28, 2019 $65.87 1.84% 2,784.49 2.97%
38. Mar 31, 2019 $68.54 4.05% 2,834.40 1.79%
39. Apr 30, 2019 $72.79 $0.43 6.83% 2,945.83 3.93%
40. May 31, 2019 $69.62 -4.35% 2,752.06 -6.58%
41. Jun 30, 2019 $71.67 2.94% 2,941.76 6.89%
42. Jul 31, 2019 $71.74 $0.43 0.70% 2,980.38 1.31%
43. Aug 31, 2019 $74.15 3.36% 2,926.46 -1.81%
44. Sep 30, 2019 $73.51 -0.86% 2,976.74 1.72%
45. Oct 31, 2019 $68.60 $0.43 -6.09% 3,037.56 2.04%
46. Nov 30, 2019 $67.82 -1.14% 3,140.98 3.40%
47. Dec 31, 2019 $68.84 1.50% 3,230.78 2.86%
48. Jan 31, 2020 $73.78 $0.43 7.80% 3,225.52 -0.16%
49. Feb 29, 2020 $67.57 -8.42% 2,954.22 -8.41%
50. Mar 31, 2020 $66.36 -1.79% 2,584.59 -12.51%
51. Apr 30, 2020 $70.27 $0.44 6.56% 2,912.43 12.68%
52. May 31, 2020 $72.33 2.93% 3,044.31 4.53%
53. Jun 30, 2020 $73.26 1.29% 3,100.29 1.84%
54. Jul 31, 2020 $77.20 $0.44 5.98% 3,271.12 5.51%
55. Aug 31, 2020 $79.26 2.67% 3,500.31 7.01%
56. Sep 30, 2020 $77.15 -2.66% 3,363.00 -3.92%
57. Oct 31, 2020 $78.89 $0.44 2.83% 3,269.96 -2.77%
58. Nov 30, 2020 $85.64 8.56% 3,621.63 10.75%
59. Dec 31, 2020 $85.51 -0.15% 3,756.07 3.71%
Average (R): 0.70% 1.22%
Standard deviation: 4.77% 4.36%

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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


Variance and Covariance

Colgate-Palmolive Co., calculation of variance and covariance of returns

Microsoft Excel LibreOffice Calc
t Date RCL,t RS&P 500,t (RCL,tRCL)2 (RS&P 500,tRS&P 500)2 (RCL,tRCL)×(RS&P 500,tRS&P 500)
1. Feb 29, 2016 -2.80% -0.41% 12.26 2.67 5.72
2. Mar 31, 2016 7.63% 6.60% 48.02 28.93 37.27
3. Apr 30, 2016 0.93% 0.27% 0.05 0.90 -0.22
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2020 8.56% 10.75% 61.67 90.91 74.88
59. Dec 31, 2020 -0.15% 3.71% 0.73 6.21 -2.13
Total (Σ): 1,320.08 1,103.45 680.03
t Date RCL,t RS&P 500,t (RCL,tRCL)2 (RS&P 500,tRS&P 500)2 (RCL,tRCL)×(RS&P 500,tRS&P 500)
1. Feb 29, 2016 -2.80% -0.41% 12.26 2.67 5.72
2. Mar 31, 2016 7.63% 6.60% 48.02 28.93 37.27
3. Apr 30, 2016 0.93% 0.27% 0.05 0.90 -0.22
4. May 31, 2016 -0.72% 1.53% 2.02 0.10 -0.44
5. Jun 30, 2016 3.96% 0.09% 10.62 1.27 -3.68
6. Jul 31, 2016 2.21% 3.56% 2.28 5.48 3.53
7. Aug 31, 2016 -0.12% -0.12% 0.68 1.80 1.11
8. Sep 30, 2016 -0.27% -0.12% 0.95 1.81 1.31
9. Oct 31, 2016 -3.22% -1.94% 15.42 10.00 12.42
10. Nov 30, 2016 -8.59% 3.42% 86.37 4.83 -20.42
11. Dec 31, 2016 0.32% 1.82% 0.15 0.36 -0.23
12. Jan 31, 2017 -0.72% 1.79% 2.02 0.32 -0.81
13. Feb 28, 2017 13.01% 3.72% 151.39 6.25 30.76
14. Mar 31, 2017 0.29% -0.04% 0.17 1.59 0.52
15. Apr 30, 2017 -1.02% 0.91% 2.99 0.10 0.54
16. May 31, 2017 6.00% 1.16% 28.02 0.00 -0.33
17. Jun 30, 2017 -2.92% 0.48% 13.13 0.55 2.68
18. Jul 31, 2017 -2.06% 1.93% 7.66 0.51 -1.98
19. Aug 31, 2017 -0.78% 0.05% 2.19 1.36 1.72
20. Sep 30, 2017 1.69% 1.93% 0.97 0.50 0.70
21. Oct 31, 2017 -2.75% 2.22% 11.89 1.00 -3.44
22. Nov 30, 2017 2.84% 2.81% 4.56 2.52 3.39
23. Dec 31, 2017 4.14% 0.98% 11.82 0.06 -0.81
24. Jan 31, 2018 -1.07% 5.62% 3.16 19.34 -7.81
25. Feb 28, 2018 -7.10% -3.89% 60.87 26.16 39.90
26. Mar 31, 2018 3.93% -2.69% 10.41 15.28 -12.61
27. Apr 30, 2018 -8.41% 0.27% 83.09 0.90 8.64
28. May 31, 2018 -3.28% 2.16% 15.87 0.89 -3.75
29. Jun 30, 2018 2.73% 0.48% 4.09 0.54 -1.49
30. Jul 31, 2018 4.04% 3.60% 11.15 5.67 7.96
31. Aug 31, 2018 -0.90% 3.03% 2.56 3.26 -2.89
32. Sep 30, 2018 0.81% 0.43% 0.01 0.63 -0.09
33. Oct 31, 2018 -10.43% -6.94% 123.85 66.59 90.82
34. Nov 30, 2018 6.67% 1.79% 35.56 0.32 3.37
35. Dec 31, 2018 -6.30% -9.18% 49.00 108.11 72.79
36. Jan 31, 2019 9.38% 7.87% 75.20 44.20 57.65
37. Feb 28, 2019 1.84% 2.97% 1.29 3.07 1.99
38. Mar 31, 2019 4.05% 1.79% 11.22 0.33 1.92
39. Apr 30, 2019 6.83% 3.93% 37.52 7.35 16.61
40. May 31, 2019 -4.35% -6.58% 25.58 60.81 39.44
41. Jun 30, 2019 2.94% 6.89% 5.02 32.18 12.72
42. Jul 31, 2019 0.70% 1.31% 0.00 0.01 0.00
43. Aug 31, 2019 3.36% -1.81% 7.06 9.18 -8.05
44. Sep 30, 2019 -0.86% 1.72% 2.45 0.25 -0.78
45. Oct 31, 2019 -6.09% 2.04% 46.21 0.68 -5.60
46. Nov 30, 2019 -1.14% 3.40% 3.39 4.77 -4.02
47. Dec 31, 2019 1.50% 2.86% 0.64 2.69 1.31
48. Jan 31, 2020 7.80% -0.16% 50.38 1.91 -9.82
49. Feb 29, 2020 -8.42% -8.41% 83.17 92.76 87.84
50. Mar 31, 2020 -1.79% -12.51% 6.22 188.57 34.25
51. Apr 30, 2020 6.56% 12.68% 34.25 131.43 67.09
52. May 31, 2020 2.93% 4.53% 4.97 10.94 7.37
53. Jun 30, 2020 1.29% 1.84% 0.34 0.38 0.36
54. Jul 31, 2020 5.98% 5.51% 27.83 18.40 22.63
55. Aug 31, 2020 2.67% 7.01% 3.86 33.48 11.37
56. Sep 30, 2020 -2.66% -3.92% 11.32 26.45 17.31
57. Oct 31, 2020 2.83% -2.77% 4.51 15.89 -8.46
58. Nov 30, 2020 8.56% 10.75% 61.67 90.91 74.88
59. Dec 31, 2020 -0.15% 3.71% 0.73 6.21 -2.13
Total (Σ): 1,320.08 1,103.45 680.03

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VarianceCL = Σ(RCL,tRCL)2 ÷ (59 – 1)
= 1,320.08 ÷ (59 – 1)
= 22.76

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= 1,103.45 ÷ (59 – 1)
= 19.02

CovarianceCL, S&P 500 = Σ(RCL,tRCL)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= 680.03 ÷ (59 – 1)
= 11.72


Systematic Risk (β) Estimation

Microsoft Excel LibreOffice Calc
VarianceCL 22.76
VarianceS&P 500 19.02
CovarianceCL, S&P 500 11.72
Correlation coefficientCL, S&P 5001 0.56
βCL2 0.62
αCL3 -0.05%

Calculations

1 Correlation coefficientCL, S&P 500
= CovarianceCL, S&P 500 ÷ (Standard deviationCL × Standard deviationS&P 500)
= 11.72 ÷ (4.77% × 4.36%)
= 0.56

2 βCL
= CovarianceCL, S&P 500 ÷ VarianceS&P 500
= 11.72 ÷ 19.02
= 0.62

3 αCL
= AverageCL – βCL × AverageS&P 500
= 0.70%0.62 × 1.22%
= -0.05%


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF 2.02%
Expected rate of return on market portfolio2 E(RM) 11.66%
Systematic risk (β) of Colgate-Palmolive Co.’s common stock βCL 0.62
 
Expected rate of return on Colgate-Palmolive Co.’s common stock3 E(RCL) 7.96%

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(RCL) = RF + βCL [E(RM) – RF]
= 2.02% + 0.62 [11.66%2.02%]
= 7.96%