Microsoft Excel LibreOffice Calc

Exxon Mobil Corp. (XOM)


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 Exxon Mobil Corp.’s common stock.


Rates of Return

Exxon Mobil Corp., monthly rates of return

Microsoft Excel LibreOffice Calc
Exxon Mobil Corp. (XOM) Standard & Poor’s 500 (S&P 500)
t Date PriceXOM,t1 DividendXOM,t1 RXOM,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 92.16 1,782.59
1. Feb 28, 2014 96.27 0.63 5.14% 1,859.45 4.31%
2. Mar 31, 2014 97.68 1.46% 1,872.34 0.69%
3. Apr 30, 2014 102.41 4.84% 1,883.95 0.62%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2018 79.50 0.82 0.80% 2,760.17 1.79%
59. Dec 31, 2018 68.19 -14.23% 2,506.85 -9.18%
Average: -0.11% 0.63%
Standard Deviation: 4.57% 3.13%
Exxon Mobil Corp. (XOM) Standard & Poor’s 500 (S&P 500)
t Date PriceXOM,t1 DividendXOM,t1 RXOM,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 92.16 1,782.59
1. Feb 28, 2014 96.27 0.63 5.14% 1,859.45 4.31%
2. Mar 31, 2014 97.68 1.46% 1,872.34 0.69%
3. Apr 30, 2014 102.41 4.84% 1,883.95 0.62%
4. May 31, 2014 100.53 0.69 -1.16% 1,923.57 2.10%
5. Jun 30, 2014 100.68 0.15% 1,960.23 1.91%
6. Jul 31, 2014 98.94 -1.73% 1,930.67 -1.51%
7. Aug 31, 2014 99.46 0.69 1.22% 2,003.37 3.77%
8. Sep 30, 2014 94.05 -5.44% 1,972.29 -1.55%
9. Oct 31, 2014 96.71 2.83% 2,018.05 2.32%
10. Nov 30, 2014 90.54 0.69 -5.67% 2,067.56 2.45%
11. Dec 31, 2014 92.45 2.11% 2,058.90 -0.42%
12. Jan 31, 2015 87.42 -5.44% 1,994.99 -3.10%
13. Feb 28, 2015 88.54 0.69 2.07% 2,104.50 5.49%
14. Mar 31, 2015 85.00 -4.00% 2,067.89 -1.74%
15. Apr 30, 2015 87.37 2.79% 2,085.51 0.85%
16. May 31, 2015 85.20 0.73 -1.65% 2,107.39 1.05%
17. Jun 30, 2015 83.20 -2.35% 2,063.11 -2.10%
18. Jul 31, 2015 79.21 -4.80% 2,103.84 1.97%
19. Aug 31, 2015 75.24 0.73 -4.09% 1,972.18 -6.26%
20. Sep 30, 2015 74.35 -1.18% 1,920.03 -2.64%
21. Oct 31, 2015 82.74 11.28% 2,079.36 8.30%
22. Nov 30, 2015 81.66 0.73 -0.42% 2,080.41 0.05%
23. Dec 31, 2015 77.95 -4.54% 2,043.94 -1.75%
24. Jan 31, 2016 77.85 -0.13% 1,940.24 -5.07%
25. Feb 29, 2016 80.15 0.73 3.89% 1,932.23 -0.41%
26. Mar 31, 2016 83.59 4.29% 2,059.74 6.60%
27. Apr 30, 2016 88.40 5.75% 2,065.30 0.27%
28. May 31, 2016 89.02 0.75 1.55% 2,096.95 1.53%
29. Jun 30, 2016 93.74 5.30% 2,098.86 0.09%
30. Jul 31, 2016 88.95 -5.11% 2,173.60 3.56%
31. Aug 31, 2016 87.14 0.75 -1.19% 2,170.95 -0.12%
32. Sep 30, 2016 87.28 0.16% 2,168.27 -0.12%
33. Oct 31, 2016 83.32 -4.54% 2,126.15 -1.94%
34. Nov 30, 2016 87.30 0.75 5.68% 2,198.81 3.42%
35. Dec 31, 2016 90.26 3.39% 2,238.83 1.82%
36. Jan 31, 2017 83.89 -7.06% 2,278.87 1.79%
37. Feb 28, 2017 81.32 0.75 -2.17% 2,363.64 3.72%
38. Mar 31, 2017 82.01 0.85% 2,362.72 -0.04%
39. Apr 30, 2017 81.65 -0.44% 2,384.20 0.91%
40. May 31, 2017 80.50 0.77 -0.47% 2,411.80 1.16%
41. Jun 30, 2017 80.73 0.29% 2,423.41 0.48%
42. Jul 31, 2017 80.04 -0.85% 2,470.30 1.93%
43. Aug 31, 2017 76.33 0.77 -3.67% 2,471.65 0.05%
44. Sep 30, 2017 81.98 7.40% 2,519.36 1.93%
45. Oct 31, 2017 83.35 1.67% 2,575.26 2.22%
46. Nov 30, 2017 83.29 0.77 0.85% 2,647.58 2.81%
47. Dec 31, 2017 83.64 0.42% 2,673.61 0.98%
48. Jan 31, 2018 87.30 4.38% 2,823.81 5.62%
49. Feb 28, 2018 75.74 0.77 -12.36% 2,713.83 -3.89%
50. Mar 31, 2018 74.61 -1.49% 2,640.87 -2.69%
51. Apr 30, 2018 77.75 4.21% 2,648.05 0.27%
52. May 31, 2018 81.24 0.82 5.54% 2,705.27 2.16%
53. Jun 30, 2018 82.73 1.83% 2,718.37 0.48%
54. Jul 31, 2018 81.51 -1.47% 2,816.29 3.60%
55. Aug 31, 2018 80.17 0.82 -0.64% 2,901.52 3.03%
56. Sep 30, 2018 85.02 6.05% 2,913.98 0.43%
57. Oct 31, 2018 79.68 -6.28% 2,711.74 -6.94%
58. Nov 30, 2018 79.50 0.82 0.80% 2,760.17 1.79%
59. Dec 31, 2018 68.19 -14.23% 2,506.85 -9.18%
Average: -0.11% 0.63%
Standard Deviation: 4.57% 3.13%

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 XOM 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
VarianceXOM 20.89
VarianceS&P 500 9.77
CovarianceXOM, S&P 500 8.69
Correlation CoefficientXOM, S&P 5001 0.61
βXOM2 0.89
αXOM3 -0.67

Calculations

1 CovarianceXOM, S&P 500 ÷ (Standard DeviationXOM × Standard DeviationS&P 500)
= 8.69 ÷ (4.57 × 3.13)

2 CovarianceXOM, S&P 500 ÷ VarianceS&P 500
= 8.69 ÷ 9.77

3 AverageXOM – βXOM × AverageS&P 500
= -0.110.89 × 0.63


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.45%
Expected rate of return on market portfolio2 E(RM) 11.79%
Systematic risk (β) of Exxon Mobil Corp.’s common stock βXOM 0.89
Expected rate of return on Exxon Mobil Corp.’s common stock3 E(RXOM) 10.76%

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(RXOM) = RF + βXOM [E(RM) – RF]
= 2.45% + 0.89 [11.79%2.45%]
= 10.76%