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 Constellation Brands Inc. common stock.
Rates of Return
Constellation Brands Inc., monthly rates of return
| Constellation Brands Inc. (STZ) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceSTZ,t1 | DividendSTZ,t1 | RSTZ,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Mar 31, 2016 | $151.09 | 2,059.74 | ||||
| 1. | Apr 30, 2016 | $156.06 | 3.29% | 2,065.30 | 0.27% | |
| 2. | May 31, 2016 | $153.15 | $0.40 | -1.61% | 2,096.95 | 1.53% |
| 3. | Jun 30, 2016 | $165.40 | 8.00% | 2,098.86 | 0.09% | |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Jan 31, 2022 | $237.75 | -5.27% | 4,515.55 | -5.26% | |
| 71. | Feb 28, 2022 | $215.62 | $0.76 | -8.99% | 4,373.94 | -3.14% |
| Average (R): | 0.88% | 1.16% | ||||
| Standard deviation: | 7.34% | 4.23% | ||||
| Constellation Brands Inc. (STZ) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceSTZ,t1 | DividendSTZ,t1 | RSTZ,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Mar 31, 2016 | $151.09 | 2,059.74 | ||||
| 1. | Apr 30, 2016 | $156.06 | 3.29% | 2,065.30 | 0.27% | |
| 2. | May 31, 2016 | $153.15 | $0.40 | -1.61% | 2,096.95 | 1.53% |
| 3. | Jun 30, 2016 | $165.40 | 8.00% | 2,098.86 | 0.09% | |
| 4. | Jul 31, 2016 | $164.63 | -0.47% | 2,173.60 | 3.56% | |
| 5. | Aug 31, 2016 | $164.05 | $0.40 | -0.11% | 2,170.95 | -0.12% |
| 6. | Sep 30, 2016 | $166.49 | 1.49% | 2,168.27 | -0.12% | |
| 7. | Oct 31, 2016 | $167.12 | 0.38% | 2,126.15 | -1.94% | |
| 8. | Nov 30, 2016 | $151.14 | $0.40 | -9.32% | 2,198.81 | 3.42% |
| 9. | Dec 31, 2016 | $153.31 | 1.44% | 2,238.83 | 1.82% | |
| 10. | Jan 31, 2017 | $149.76 | -2.32% | 2,278.87 | 1.79% | |
| 11. | Feb 28, 2017 | $158.81 | $0.40 | 6.31% | 2,363.64 | 3.72% |
| 12. | Mar 31, 2017 | $162.07 | 2.05% | 2,362.72 | -0.04% | |
| 13. | Apr 30, 2017 | $172.54 | 6.46% | 2,384.20 | 0.91% | |
| 14. | May 31, 2017 | $182.75 | $0.52 | 6.22% | 2,411.80 | 1.16% |
| 15. | Jun 30, 2017 | $193.73 | 6.01% | 2,423.41 | 0.48% | |
| 16. | Jul 31, 2017 | $193.35 | -0.20% | 2,470.30 | 1.93% | |
| 17. | Aug 31, 2017 | $200.10 | $0.52 | 3.76% | 2,471.65 | 0.05% |
| 18. | Sep 30, 2017 | $199.45 | -0.32% | 2,519.36 | 1.93% | |
| 19. | Oct 31, 2017 | $219.09 | 9.85% | 2,575.26 | 2.22% | |
| 20. | Nov 30, 2017 | $217.59 | $0.52 | -0.45% | 2,647.58 | 2.81% |
| 21. | Dec 31, 2017 | $228.57 | 5.05% | 2,673.61 | 0.98% | |
| 22. | Jan 31, 2018 | $219.47 | -3.98% | 2,823.81 | 5.62% | |
| 23. | Feb 28, 2018 | $215.48 | $0.52 | -1.58% | 2,713.83 | -3.89% |
| 24. | Mar 31, 2018 | $227.92 | 5.77% | 2,640.87 | -2.69% | |
| 25. | Apr 30, 2018 | $233.13 | 2.29% | 2,648.05 | 0.27% | |
| 26. | May 31, 2018 | $223.08 | $0.74 | -3.99% | 2,705.27 | 2.16% |
| 27. | Jun 30, 2018 | $218.87 | -1.89% | 2,718.37 | 0.48% | |
| 28. | Jul 31, 2018 | $210.23 | -3.95% | 2,816.29 | 3.60% | |
| 29. | Aug 31, 2018 | $208.20 | $0.74 | -0.61% | 2,901.52 | 3.03% |
| 30. | Sep 30, 2018 | $215.62 | 3.56% | 2,913.98 | 0.43% | |
| 31. | Oct 31, 2018 | $199.23 | -7.60% | 2,711.74 | -6.94% | |
| 32. | Nov 30, 2018 | $195.76 | $0.74 | -1.37% | 2,760.17 | 1.79% |
| 33. | Dec 31, 2018 | $160.82 | -17.85% | 2,506.85 | -9.18% | |
| 34. | Jan 31, 2019 | $173.66 | 7.98% | 2,704.10 | 7.87% | |
| 35. | Feb 28, 2019 | $169.16 | $0.74 | -2.17% | 2,784.49 | 2.97% |
| 36. | Mar 31, 2019 | $175.33 | 3.65% | 2,834.40 | 1.79% | |
| 37. | Apr 30, 2019 | $211.67 | 20.73% | 2,945.83 | 3.93% | |
| 38. | May 31, 2019 | $176.45 | $0.75 | -16.28% | 2,752.06 | -6.58% |
| 39. | Jun 30, 2019 | $196.94 | 11.61% | 2,941.76 | 6.89% | |
| 40. | Jul 31, 2019 | $196.82 | -0.06% | 2,980.38 | 1.31% | |
| 41. | Aug 31, 2019 | $204.35 | $0.75 | 4.21% | 2,926.46 | -1.81% |
| 42. | Sep 30, 2019 | $207.28 | 1.43% | 2,976.74 | 1.72% | |
| 43. | Oct 31, 2019 | $190.33 | -8.18% | 3,037.56 | 2.04% | |
| 44. | Nov 30, 2019 | $186.06 | $0.75 | -1.85% | 3,140.98 | 3.40% |
| 45. | Dec 31, 2019 | $189.75 | 1.98% | 3,230.78 | 2.86% | |
| 46. | Jan 31, 2020 | $188.30 | -0.76% | 3,225.52 | -0.16% | |
| 47. | Feb 29, 2020 | $172.38 | $0.75 | -8.06% | 2,954.22 | -8.41% |
| 48. | Mar 31, 2020 | $143.36 | -16.83% | 2,584.59 | -12.51% | |
| 49. | Apr 30, 2020 | $164.69 | 14.88% | 2,912.43 | 12.68% | |
| 50. | May 31, 2020 | $172.70 | $0.75 | 5.32% | 3,044.31 | 4.53% |
| 51. | Jun 30, 2020 | $174.95 | 1.30% | 3,100.29 | 1.84% | |
| 52. | Jul 31, 2020 | $178.20 | 1.86% | 3,271.12 | 5.51% | |
| 53. | Aug 31, 2020 | $184.48 | $0.75 | 3.95% | 3,500.31 | 7.01% |
| 54. | Sep 30, 2020 | $189.51 | 2.73% | 3,363.00 | -3.92% | |
| 55. | Oct 31, 2020 | $165.23 | -12.81% | 3,269.96 | -2.77% | |
| 56. | Nov 30, 2020 | $205.84 | $0.75 | 25.03% | 3,621.63 | 10.75% |
| 57. | Dec 31, 2020 | $219.05 | 6.42% | 3,756.07 | 3.71% | |
| 58. | Jan 31, 2021 | $210.93 | -3.71% | 3,714.24 | -1.11% | |
| 59. | Feb 28, 2021 | $214.14 | $0.75 | 1.88% | 3,811.15 | 2.61% |
| 60. | Mar 31, 2021 | $228.00 | 6.47% | 3,972.89 | 4.24% | |
| 61. | Apr 30, 2021 | $240.32 | 5.40% | 4,181.17 | 5.24% | |
| 62. | May 31, 2021 | $239.72 | $0.76 | 0.07% | 4,204.11 | 0.55% |
| 63. | Jun 30, 2021 | $233.89 | -2.43% | 4,297.50 | 2.22% | |
| 64. | Jul 31, 2021 | $224.34 | -4.08% | 4,395.26 | 2.27% | |
| 65. | Aug 31, 2021 | $211.14 | $0.76 | -5.55% | 4,522.68 | 2.90% |
| 66. | Sep 30, 2021 | $210.69 | -0.21% | 4,307.54 | -4.76% | |
| 67. | Oct 31, 2021 | $216.81 | 2.90% | 4,605.38 | 6.91% | |
| 68. | Nov 30, 2021 | $225.33 | $0.76 | 4.28% | 4,567.00 | -0.83% |
| 69. | Dec 31, 2021 | $250.97 | 11.38% | 4,766.18 | 4.36% | |
| 70. | Jan 31, 2022 | $237.75 | -5.27% | 4,515.55 | -5.26% | |
| 71. | Feb 28, 2022 | $215.62 | $0.76 | -8.99% | 4,373.94 | -3.14% |
| Average (R): | 0.88% | 1.16% | ||||
| Standard deviation: | 7.34% | 4.23% | ||||
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of STZ during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Constellation Brands Inc., calculation of variance and covariance of returns
| t | Date | RSTZ,t | RS&P 500,t | (RSTZ,t–RSTZ)2 | (RS&P 500,t–RS&P 500)2 | (RSTZ,t–RSTZ)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Apr 30, 2016 | 3.29% | 0.27% | 5.80 | 0.78 | -2.13 |
| 2. | May 31, 2016 | -1.61% | 1.53% | 6.19 | 0.14 | -0.94 |
| 3. | Jun 30, 2016 | 8.00% | 0.09% | 50.67 | 1.13 | -7.57 |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Jan 31, 2022 | -5.27% | -5.26% | 37.80 | 41.13 | 39.43 |
| 71. | Feb 28, 2022 | -8.99% | -3.14% | 97.40 | 18.41 | 42.35 |
| Total (Σ): | 3,770.51 | 1,252.81 | 1,429.54 | |||
| t | Date | RSTZ,t | RS&P 500,t | (RSTZ,t–RSTZ)2 | (RS&P 500,t–RS&P 500)2 | (RSTZ,t–RSTZ)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Apr 30, 2016 | 3.29% | 0.27% | 5.80 | 0.78 | -2.13 |
| 2. | May 31, 2016 | -1.61% | 1.53% | 6.19 | 0.14 | -0.94 |
| 3. | Jun 30, 2016 | 8.00% | 0.09% | 50.67 | 1.13 | -7.57 |
| 4. | Jul 31, 2016 | -0.47% | 3.56% | 1.81 | 5.79 | -3.24 |
| 5. | Aug 31, 2016 | -0.11% | -0.12% | 0.98 | 1.63 | 1.26 |
| 6. | Sep 30, 2016 | 1.49% | -0.12% | 0.37 | 1.63 | -0.78 |
| 7. | Oct 31, 2016 | 0.38% | -1.94% | 0.25 | 9.60 | 1.56 |
| 8. | Nov 30, 2016 | -9.32% | 3.42% | 104.10 | 5.12 | -23.08 |
| 9. | Dec 31, 2016 | 1.44% | 1.82% | 0.31 | 0.44 | 0.37 |
| 10. | Jan 31, 2017 | -2.32% | 1.79% | 10.22 | 0.40 | -2.02 |
| 11. | Feb 28, 2017 | 6.31% | 3.72% | 29.48 | 6.58 | 13.93 |
| 12. | Mar 31, 2017 | 2.05% | -0.04% | 1.37 | 1.43 | -1.40 |
| 13. | Apr 30, 2017 | 6.46% | 0.91% | 31.13 | 0.06 | -1.37 |
| 14. | May 31, 2017 | 6.22% | 1.16% | 28.50 | 0.00 | 0.01 |
| 15. | Jun 30, 2017 | 6.01% | 0.48% | 26.29 | 0.45 | -3.45 |
| 16. | Jul 31, 2017 | -0.20% | 1.93% | 1.16 | 0.61 | -0.84 |
| 17. | Aug 31, 2017 | 3.76% | 0.05% | 8.29 | 1.21 | -3.17 |
| 18. | Sep 30, 2017 | -0.32% | 1.93% | 1.45 | 0.60 | -0.93 |
| 19. | Oct 31, 2017 | 9.85% | 2.22% | 80.40 | 1.13 | 9.54 |
| 20. | Nov 30, 2017 | -0.45% | 2.81% | 1.76 | 2.73 | -2.20 |
| 21. | Dec 31, 2017 | 5.05% | 0.98% | 17.35 | 0.03 | -0.72 |
| 22. | Jan 31, 2018 | -3.98% | 5.62% | 23.64 | 19.92 | -21.70 |
| 23. | Feb 28, 2018 | -1.58% | -3.89% | 6.06 | 25.50 | 12.43 |
| 24. | Mar 31, 2018 | 5.77% | -2.69% | 23.94 | 14.77 | -18.81 |
| 25. | Apr 30, 2018 | 2.29% | 0.27% | 1.98 | 0.78 | -1.24 |
| 26. | May 31, 2018 | -3.99% | 2.16% | 23.76 | 1.01 | -4.90 |
| 27. | Jun 30, 2018 | -1.89% | 0.48% | 7.66 | 0.45 | 1.86 |
| 28. | Jul 31, 2018 | -3.95% | 3.60% | 23.31 | 5.99 | -11.81 |
| 29. | Aug 31, 2018 | -0.61% | 3.03% | 2.23 | 3.50 | -2.80 |
| 30. | Sep 30, 2018 | 3.56% | 0.43% | 7.20 | 0.53 | -1.95 |
| 31. | Oct 31, 2018 | -7.60% | -6.94% | 71.94 | 65.54 | 68.66 |
| 32. | Nov 30, 2018 | -1.37% | 1.79% | 5.07 | 0.40 | -1.42 |
| 33. | Dec 31, 2018 | -17.85% | -9.18% | 350.77 | 106.77 | 193.52 |
| 34. | Jan 31, 2019 | 7.98% | 7.87% | 50.46 | 45.07 | 47.69 |
| 35. | Feb 28, 2019 | -2.17% | 2.97% | 9.28 | 3.30 | -5.54 |
| 36. | Mar 31, 2019 | 3.65% | 1.79% | 7.66 | 0.41 | 1.76 |
| 37. | Apr 30, 2019 | 20.73% | 3.93% | 393.87 | 7.71 | 55.10 |
| 38. | May 31, 2019 | -16.28% | -6.58% | 294.65 | 59.80 | 132.74 |
| 39. | Jun 30, 2019 | 11.61% | 6.89% | 115.17 | 32.92 | 61.58 |
| 40. | Jul 31, 2019 | -0.06% | 1.31% | 0.89 | 0.02 | -0.15 |
| 41. | Aug 31, 2019 | 4.21% | -1.81% | 11.06 | 8.79 | -9.86 |
| 42. | Sep 30, 2019 | 1.43% | 1.72% | 0.31 | 0.32 | 0.31 |
| 43. | Oct 31, 2019 | -8.18% | 2.04% | 82.05 | 0.79 | -8.04 |
| 44. | Nov 30, 2019 | -1.85% | 3.40% | 7.45 | 5.06 | -6.14 |
| 45. | Dec 31, 2019 | 1.98% | 2.86% | 1.22 | 2.90 | 1.88 |
| 46. | Jan 31, 2020 | -0.76% | -0.16% | 2.71 | 1.74 | 2.17 |
| 47. | Feb 29, 2020 | -8.06% | -8.41% | 79.87 | 91.51 | 85.49 |
| 48. | Mar 31, 2020 | -16.83% | -12.51% | 313.84 | 186.79 | 242.12 |
| 49. | Apr 30, 2020 | 14.88% | 12.68% | 195.95 | 132.92 | 161.39 |
| 50. | May 31, 2020 | 5.32% | 4.53% | 19.70 | 11.38 | 14.97 |
| 51. | Jun 30, 2020 | 1.30% | 1.84% | 0.18 | 0.47 | 0.29 |
| 52. | Jul 31, 2020 | 1.86% | 5.51% | 0.95 | 18.97 | 4.26 |
| 53. | Aug 31, 2020 | 3.95% | 7.01% | 9.39 | 34.24 | 17.93 |
| 54. | Sep 30, 2020 | 2.73% | -3.92% | 3.41 | 25.79 | -9.37 |
| 55. | Oct 31, 2020 | -12.81% | -2.77% | 187.49 | 15.38 | 53.70 |
| 56. | Nov 30, 2020 | 25.03% | 10.75% | 583.28 | 92.15 | 231.84 |
| 57. | Dec 31, 2020 | 6.42% | 3.71% | 30.66 | 6.54 | 14.16 |
| 58. | Jan 31, 2021 | -3.71% | -1.11% | 21.04 | 5.15 | 10.41 |
| 59. | Feb 28, 2021 | 1.88% | 2.61% | 0.99 | 2.11 | 1.45 |
| 60. | Mar 31, 2021 | 6.47% | 4.24% | 31.27 | 9.54 | 17.27 |
| 61. | Apr 30, 2021 | 5.40% | 5.24% | 20.46 | 16.71 | 18.49 |
| 62. | May 31, 2021 | 0.07% | 0.55% | 0.66 | 0.37 | 0.49 |
| 63. | Jun 30, 2021 | -2.43% | 2.22% | 10.97 | 1.14 | -3.53 |
| 64. | Jul 31, 2021 | -4.08% | 2.27% | 24.64 | 1.25 | -5.56 |
| 65. | Aug 31, 2021 | -5.55% | 2.90% | 41.29 | 3.04 | -11.21 |
| 66. | Sep 30, 2021 | -0.21% | -4.76% | 1.20 | 34.95 | 6.47 |
| 67. | Oct 31, 2021 | 2.90% | 6.91% | 4.10 | 33.17 | 11.66 |
| 68. | Nov 30, 2021 | 4.28% | -0.83% | 11.56 | 3.95 | -6.76 |
| 69. | Dec 31, 2021 | 11.38% | 4.36% | 110.21 | 10.28 | 33.66 |
| 70. | Jan 31, 2022 | -5.27% | -5.26% | 37.80 | 41.13 | 39.43 |
| 71. | Feb 28, 2022 | -8.99% | -3.14% | 97.40 | 18.41 | 42.35 |
| Total (Σ): | 3,770.51 | 1,252.81 | 1,429.54 | |||
Show all
VarianceSTZ = Σ(RSTZ,t–RSTZ)2 ÷ (71 – 1)
= 3,770.51 ÷ (71 – 1)
= 53.86
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)
= 1,252.81 ÷ (71 – 1)
= 17.90
CovarianceSTZ, S&P 500 = Σ(RSTZ,t–RSTZ)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)
= 1,429.54 ÷ (71 – 1)
= 20.42
Systematic Risk (β) Estimation
| VarianceSTZ | 53.86 |
| VarianceS&P 500 | 17.90 |
| CovarianceSTZ, S&P 500 | 20.42 |
| Correlation coefficientSTZ, S&P 5001 | 0.66 |
| βSTZ2 | 1.14 |
| αSTZ3 | -0.44% |
Calculations
1 Correlation coefficientSTZ, S&P 500
= CovarianceSTZ, S&P 500 ÷ (Standard deviationSTZ × Standard deviationS&P 500)
= 20.42 ÷ (7.34% × 4.23%)
= 0.66
2 βSTZ
= CovarianceSTZ, S&P 500 ÷ VarianceS&P 500
= 20.42 ÷ 17.90
= 1.14
3 αSTZ
= AverageSTZ – βSTZ × AverageS&P 500
= 0.88% – 1.14 × 1.16%
= -0.44%
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | 4.61% |
| Expected rate of return on market portfolio2 | E(RM) | 14.88% |
| Systematic risk (β) of Constellation Brands Inc. common stock | βSTZ | 1.14 |
| Expected rate of return on Constellation Brands Inc. common stock3 | E(RSTZ) | 16.33% |
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(RSTZ) = RF + βSTZ [E(RM) – RF]
= 4.61% + 1.14 [14.88% – 4.61%]
= 16.33%