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Microsoft Excel LibreOffice Calc


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 DowDuPont's common stock.


Rates of Return

DowDuPont Inc., monthly rates of return

Microsoft Excel LibreOffice Calc
DowDuPont Inc. (DWDP) Standard & Poor's 500 (S&P 500)
t Date PriceDWDP,t1 DividendDWDP,t1 RDWDP,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2013 hidden hidden
1. Feb 28, 2013 hidden hidden% hidden hidden%
2. Mar 31, 2013 hidden hidden hidden% hidden hidden%
3. Apr 30, 2013 hidden hidden% hidden hidden%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2017 hidden hidden hidden% hidden hidden%
59. Dec 31, 2017 hidden hidden% hidden hidden%
Average: hidden% hidden%
Standard Deviation: hidden% hidden%
DowDuPont Inc. (DWDP) Standard & Poor's 500 (S&P 500)
t Date PriceDWDP,t1 DividendDWDP,t1 RDWDP,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2013 hidden hidden
1. Feb 28, 2013 hidden hidden% hidden hidden%
2. Mar 31, 2013 hidden hidden hidden% hidden hidden%
3. Apr 30, 2013 hidden hidden% hidden hidden%
4. May 31, 2013 hidden hidden% hidden hidden%
5. Jun 30, 2013 hidden hidden hidden% hidden hidden%
6. Jul 31, 2013 hidden hidden% hidden hidden%
7. Aug 31, 2013 hidden hidden% hidden hidden%
8. Sep 30, 2013 hidden hidden hidden% hidden hidden%
9. Oct 31, 2013 hidden hidden% hidden hidden%
10. Nov 30, 2013 hidden hidden% hidden hidden%
11. Dec 31, 2013 hidden hidden hidden% hidden hidden%
12. Jan 31, 2014 hidden hidden% hidden hidden%
13. Feb 28, 2014 hidden hidden% hidden hidden%
14. Mar 31, 2014 hidden hidden hidden% hidden hidden%
15. Apr 30, 2014 hidden hidden% hidden hidden%
16. May 31, 2014 hidden hidden% hidden hidden%
17. Jun 30, 2014 hidden hidden hidden% hidden hidden%
18. Jul 31, 2014 hidden hidden% hidden hidden%
19. Aug 31, 2014 hidden hidden% hidden hidden%
20. Sep 30, 2014 hidden hidden hidden% hidden hidden%
21. Oct 31, 2014 hidden hidden% hidden hidden%
22. Nov 30, 2014 hidden hidden% hidden hidden%
23. Dec 31, 2014 hidden hidden hidden% hidden hidden%
24. Jan 31, 2015 hidden hidden% hidden hidden%
25. Feb 28, 2015 hidden hidden% hidden hidden%
26. Mar 31, 2015 hidden hidden hidden% hidden hidden%
27. Apr 30, 2015 hidden hidden% hidden hidden%
28. May 31, 2015 hidden hidden% hidden hidden%
29. Jun 30, 2015 hidden hidden hidden% hidden hidden%
30. Jul 31, 2015 hidden hidden% hidden hidden%
31. Aug 31, 2015 hidden hidden% hidden hidden%
32. Sep 30, 2015 hidden hidden hidden% hidden hidden%
33. Oct 31, 2015 hidden hidden% hidden hidden%
34. Nov 30, 2015 hidden hidden% hidden hidden%
35. Dec 31, 2015 hidden hidden hidden% hidden hidden%
36. Jan 31, 2016 hidden hidden% hidden hidden%
37. Feb 29, 2016 hidden hidden% hidden hidden%
38. Mar 31, 2016 hidden hidden hidden% hidden hidden%
39. Apr 30, 2016 hidden hidden% hidden hidden%
40. May 31, 2016 hidden hidden% hidden hidden%
41. Jun 30, 2016 hidden hidden hidden% hidden hidden%
42. Jul 31, 2016 hidden hidden% hidden hidden%
43. Aug 31, 2016 hidden hidden% hidden hidden%
44. Sep 30, 2016 hidden hidden hidden% hidden hidden%
45. Oct 31, 2016 hidden hidden% hidden hidden%
46. Nov 30, 2016 hidden hidden% hidden hidden%
47. Dec 31, 2016 hidden hidden hidden% hidden hidden%
48. Jan 31, 2017 hidden hidden% hidden hidden%
49. Feb 28, 2017 hidden hidden% hidden hidden%
50. Mar 31, 2017 hidden hidden hidden% hidden hidden%
51. Apr 30, 2017 hidden hidden% hidden hidden%
52. May 31, 2017 hidden hidden% hidden hidden%
53. Jun 30, 2017 hidden hidden hidden% hidden hidden%
54. Jul 31, 2017 hidden hidden hidden% hidden hidden%
55. Aug 31, 2017 hidden hidden% hidden hidden%
56. Sep 30, 2017 hidden hidden% hidden hidden%
57. Oct 31, 2017 hidden hidden% hidden hidden%
58. Nov 30, 2017 hidden hidden hidden% hidden hidden%
59. Dec 31, 2017 hidden hidden% hidden hidden%
Average: hidden% hidden%
Standard Deviation: hidden% hidden%

Show All

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

2 Rate of return on common stock of DWDP 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
VarianceDWDP hidden
VarianceS&P 500 hidden
CovarianceDWDP, S&P 500 hidden
Correlation CoefficientDWDP, S&P 5001 hidden
βDWDP2 hidden
αDWDP3 hidden

Calculations

1 CovarianceDWDP, S&P 500 ÷ (Standard DeviationDWDP × Standard DeviationS&P 500)
= hidden ÷ (hidden × hidden)

2 CovarianceDWDP, S&P 500 ÷ VarianceS&P 500
= hidden ÷ hidden

3 AverageDWDP – βDWDP × AverageS&P 500
= hiddenhidden × hidden


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF hidden%
Expected rate of return on market portfolio2 E(RM) hidden%
Systematic risk (β) of DowDuPont's common stock βDWDP hidden
Expected rate of return on DowDuPont's common stock3 E(RDWDP) hidden%

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(RDWDP) = RF + βDWDP [E(RM) – RF]
= hidden% + hidden [hidden% – hidden%]
= hidden%