General Electric Co. (NYSE:GE)

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 General Electric Co. common stock.

Rates of Return
Variance and Covariance
Systematic Risk (β) Estimation
Expected Rate of Return

Rates of Return

General Electric Co., monthly rates of return

		General Electric Co. (GE)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_GE,t¹	Dividend_GE,t¹	R_GE,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2019	$81.28			2,704.10
1.	Feb 28, 2019	$83.12		2.26%	2,784.49	2.97%
2.	Mar 31, 2019	$79.92	$0.08	-3.75%	2,834.40	1.79%
3.	Apr 30, 2019	$81.36		1.80%	2,945.83	3.93%
.	.	.	.	.	.	.
.	.	.	.	.	.	.
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58.	Nov 30, 2023	$121.80		12.12%	4,567.80	8.92%
59.	Dec 31, 2023	$127.63	$0.08	4.85%	4,769.83	4.42%
Average (R):				1.40%		1.11%
Standard deviation:				11.07%		5.31%

		General Electric Co. (GE)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_GE,t¹	Dividend_GE,t¹	R_GE,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2019	$81.28			2,704.10
1.	Feb 28, 2019	$83.12		2.26%	2,784.49	2.97%
2.	Mar 31, 2019	$79.92	$0.08	-3.75%	2,834.40	1.79%
3.	Apr 30, 2019	$81.36		1.80%	2,945.83	3.93%
4.	May 31, 2019	$75.52		-7.18%	2,752.06	-6.58%
5.	Jun 30, 2019	$84.00	$0.08	11.33%	2,941.76	6.89%
6.	Jul 31, 2019	$83.60		-0.48%	2,980.38	1.31%
7.	Aug 31, 2019	$66.00		-21.05%	2,926.46	-1.81%
8.	Sep 30, 2019	$71.52	$0.08	8.48%	2,976.74	1.72%
9.	Oct 31, 2019	$79.84		11.63%	3,037.56	2.04%
10.	Nov 30, 2019	$90.16		12.93%	3,140.98	3.40%
11.	Dec 31, 2019	$89.28	$0.08	-0.89%	3,230.78	2.86%
12.	Jan 31, 2020	$99.60		11.56%	3,225.52	-0.16%
13.	Feb 29, 2020	$87.04		-12.61%	2,954.22	-8.41%
14.	Mar 31, 2020	$63.52	$0.08	-26.93%	2,584.59	-12.51%
15.	Apr 30, 2020	$54.40		-14.36%	2,912.43	12.68%
16.	May 31, 2020	$52.56		-3.38%	3,044.31	4.53%
17.	Jun 30, 2020	$54.64	$0.08	4.11%	3,100.29	1.84%
18.	Jul 31, 2020	$48.56		-11.13%	3,271.12	5.51%
19.	Aug 31, 2020	$50.72		4.45%	3,500.31	7.01%
20.	Sep 30, 2020	$49.84	$0.08	-1.58%	3,363.00	-3.92%
21.	Oct 31, 2020	$59.36		19.10%	3,269.96	-2.77%
22.	Nov 30, 2020	$81.44		37.20%	3,621.63	10.75%
23.	Dec 31, 2020	$86.40	$0.08	6.19%	3,756.07	3.71%
24.	Jan 31, 2021	$85.44		-1.11%	3,714.24	-1.11%
25.	Feb 28, 2021	$100.32		17.42%	3,811.15	2.61%
26.	Mar 31, 2021	$105.04	$0.08	4.78%	3,972.89	4.24%
27.	Apr 30, 2021	$104.96		-0.08%	4,181.17	5.24%
28.	May 31, 2021	$112.48		7.16%	4,204.11	0.55%
29.	Jun 30, 2021	$107.68	$0.08	-4.20%	4,297.50	2.22%
30.	Jul 31, 2021	$103.60		-3.79%	4,395.26	2.27%
31.	Aug 31, 2021	$105.41		1.75%	4,522.68	2.90%
32.	Sep 30, 2021	$103.03	$0.08	-2.18%	4,307.54	-4.76%
33.	Oct 31, 2021	$104.87		1.79%	4,605.38	6.91%
34.	Nov 30, 2021	$94.99		-9.42%	4,567.00	-0.83%
35.	Dec 31, 2021	$94.47	$0.08	-0.46%	4,766.18	4.36%
36.	Jan 31, 2022	$94.48		0.01%	4,515.55	-5.26%
37.	Feb 28, 2022	$95.51		1.09%	4,373.94	-3.14%
38.	Mar 31, 2022	$91.50	$0.08	-4.11%	4,530.41	3.58%
39.	Apr 30, 2022	$74.55		-18.52%	4,131.93	-8.80%
40.	May 31, 2022	$78.29		5.02%	4,132.15	0.01%
41.	Jun 30, 2022	$63.67	$0.08	-18.57%	3,785.38	-8.39%
42.	Jul 31, 2022	$73.91		16.08%	4,130.29	9.11%
43.	Aug 31, 2022	$73.44		-0.64%	3,955.00	-4.24%
44.	Sep 30, 2022	$61.91	$0.08	-15.59%	3,585.62	-9.34%
45.	Oct 31, 2022	$77.81		25.68%	3,871.98	7.99%
46.	Nov 30, 2022	$85.97		10.49%	4,080.11	5.38%
47.	Dec 31, 2022	$83.79	$0.08	-2.44%	3,839.50	-5.90%
48.	Jan 31, 2023	$80.48		-3.95%	4,076.60	6.18%
49.	Feb 28, 2023	$84.71		5.26%	3,970.15	-2.61%
50.	Mar 31, 2023	$95.60	$0.08	12.95%	4,109.31	3.51%
51.	Apr 30, 2023	$98.97		3.53%	4,169.48	1.46%
52.	May 31, 2023	$101.53		2.59%	4,179.83	0.25%
53.	Jun 30, 2023	$109.85		8.19%	4,376.86	4.71%
54.	Jul 31, 2023	$114.24	$0.08	4.07%	4,588.96	4.85%
55.	Aug 31, 2023	$114.46		0.19%	4,507.66	-1.77%
56.	Sep 30, 2023	$110.55	$0.08	-3.35%	4,288.05	-4.87%
57.	Oct 31, 2023	$108.63		-1.74%	4,193.80	-2.20%
58.	Nov 30, 2023	$121.80		12.12%	4,567.80	8.92%
59.	Dec 31, 2023	$127.63	$0.08	4.85%	4,769.83	4.42%
Average (R):				1.40%		1.11%
Standard deviation:				11.07%		5.31%

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 GE during period t

³ Rate of return on S&P 500 (the market portfolio proxy) during period t

Variance and Covariance

General Electric Co., calculation of variance and covariance of returns

t	Date	R_GE,t	R_{S&P 500,t}	(R_GE,t–R_GE)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_GE,t–R_GE)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 28, 2019	2.26%	2.97%	0.75	3.49	1.61
2.	Mar 31, 2019	-3.75%	1.79%	26.56	0.47	-3.54
3.	Apr 30, 2019	1.80%	3.93%	0.16	7.98	1.14
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58.	Nov 30, 2023	12.12%	8.92%	115.01	61.03	83.78
59.	Dec 31, 2023	4.85%	4.42%	11.92	11.00	11.45
Total (Σ):				7,108.99	1,634.30	1,934.19

t	Date	R_GE,t	R_{S&P 500,t}	(R_GE,t–R_GE)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_GE,t–R_GE)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 28, 2019	2.26%	2.97%	0.75	3.49	1.61
2.	Mar 31, 2019	-3.75%	1.79%	26.56	0.47	-3.54
3.	Apr 30, 2019	1.80%	3.93%	0.16	7.98	1.14
4.	May 31, 2019	-7.18%	-6.58%	73.58	59.04	65.91
5.	Jun 30, 2019	11.33%	6.89%	98.71	33.49	57.50
6.	Jul 31, 2019	-0.48%	1.31%	3.52	0.04	-0.39
7.	Aug 31, 2019	-21.05%	-1.81%	504.11	8.50	65.45
8.	Sep 30, 2019	8.48%	1.72%	50.20	0.37	4.34
9.	Oct 31, 2019	11.63%	2.04%	104.72	0.88	9.59
10.	Nov 30, 2019	12.93%	3.40%	132.85	5.28	26.50
11.	Dec 31, 2019	-0.89%	2.86%	5.23	3.07	-4.01
12.	Jan 31, 2020	11.56%	-0.16%	103.22	1.61	-12.89
13.	Feb 29, 2020	-12.61%	-8.41%	196.28	90.57	133.33
14.	Mar 31, 2020	-26.93%	-12.51%	802.58	185.44	385.79
15.	Apr 30, 2020	-14.36%	12.68%	248.29	134.06	-182.45
16.	May 31, 2020	-3.38%	4.53%	22.87	11.71	-16.37
17.	Jun 30, 2020	4.11%	1.84%	7.34	0.54	1.99
18.	Jul 31, 2020	-11.13%	5.51%	156.93	19.40	-55.17
19.	Aug 31, 2020	4.45%	7.01%	9.29	34.82	17.99
20.	Sep 30, 2020	-1.58%	-3.92%	8.86	25.29	14.97
21.	Oct 31, 2020	19.10%	-2.77%	313.34	15.00	-68.55
22.	Nov 30, 2020	37.20%	10.75%	1,281.43	93.10	345.40
23.	Dec 31, 2020	6.19%	3.71%	22.93	6.79	12.48
24.	Jan 31, 2021	-1.11%	-1.11%	6.30	4.93	5.57
25.	Feb 28, 2021	17.42%	2.61%	256.51	2.26	24.08
26.	Mar 31, 2021	4.78%	4.24%	11.46	9.85	10.62
27.	Apr 30, 2021	-0.08%	5.24%	2.18	17.11	-6.10
28.	May 31, 2021	7.16%	0.55%	33.24	0.31	-3.21
29.	Jun 30, 2021	-4.20%	2.22%	31.31	1.24	-6.24
30.	Jul 31, 2021	-3.79%	2.27%	26.92	1.37	-6.07
31.	Aug 31, 2021	1.75%	2.90%	0.12	3.22	0.62
32.	Sep 30, 2021	-2.18%	-4.76%	12.83	34.37	21.00
33.	Oct 31, 2021	1.79%	6.91%	0.15	33.74	2.24
34.	Nov 30, 2021	-9.42%	-0.83%	117.09	3.76	20.98
35.	Dec 31, 2021	-0.46%	4.36%	3.47	10.60	-6.06
36.	Jan 31, 2022	0.01%	-5.26%	1.93	40.51	8.84
37.	Feb 28, 2022	1.09%	-3.14%	0.10	17.99	1.31
38.	Mar 31, 2022	-4.11%	3.58%	30.41	6.11	-13.63
39.	Apr 30, 2022	-18.52%	-8.80%	396.98	98.04	197.28
40.	May 31, 2022	5.02%	0.01%	13.08	1.21	-3.98
41.	Jun 30, 2022	-18.57%	-8.39%	398.87	90.21	189.69
42.	Jul 31, 2022	16.08%	9.11%	215.60	64.09	117.55
43.	Aug 31, 2022	-0.64%	-4.24%	4.14	28.62	10.89
44.	Sep 30, 2022	-15.59%	-9.34%	288.68	109.11	177.47
45.	Oct 31, 2022	25.68%	7.99%	589.65	47.34	167.08
46.	Nov 30, 2022	10.49%	5.38%	82.58	18.23	38.80
47.	Dec 31, 2022	-2.44%	-5.90%	14.76	49.04	26.91
48.	Jan 31, 2023	-3.95%	6.18%	28.62	25.70	-27.12
49.	Feb 28, 2023	5.26%	-2.61%	14.87	13.82	-14.33
50.	Mar 31, 2023	12.95%	3.51%	133.41	5.76	27.71
51.	Apr 30, 2023	3.53%	1.46%	4.52	0.13	0.76
52.	May 31, 2023	2.59%	0.25%	1.41	0.74	-1.02
53.	Jun 30, 2023	8.19%	4.71%	46.17	13.02	24.52
54.	Jul 31, 2023	4.07%	4.85%	7.13	13.99	9.98
55.	Aug 31, 2023	0.19%	-1.77%	1.46	8.28	3.47
56.	Sep 30, 2023	-3.35%	-4.87%	22.52	35.73	28.37
57.	Oct 31, 2023	-1.74%	-2.20%	9.84	10.92	10.36
58.	Nov 30, 2023	12.12%	8.92%	115.01	61.03	83.78
59.	Dec 31, 2023	4.85%	4.42%	11.92	11.00	11.45
Total (Σ):				7,108.99	1,634.30	1,934.19

Show all

Variance_GE = Σ(R_GE,t–R_GE)² ÷ (59 – 1)
= 7,108.99 ÷ (59 – 1)
= 122.57

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (59 – 1)
= 1,634.30 ÷ (59 – 1)
= 28.18

Covariance_{GE, S&P 500} = Σ(R_GE,t–R_GE)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (59 – 1)
= 1,934.19 ÷ (59 – 1)
= 33.35

Systematic Risk (β) Estimation

Variance_GE	122.57
Variance_{S&P 500}	28.18
Covariance_{GE, S&P 500}	33.35
Correlation coefficient_{GE, S&P 500}¹	0.57
β_GE²	1.18
α_GE³	0.09%

Calculations

¹ Correlation coefficient_{GE, S&P 500}
= Covariance_{GE, S&P 500} ÷ (Standard deviation_GE × Standard deviation_{S&P 500})
= 33.35 ÷ (11.07% × 5.31%)
= 0.57

² β_GE
= Covariance_{GE, S&P 500} ÷ Variance_{S&P 500}
= 33.35 ÷ 28.18
= 1.18

³ α_GE
= Average_GE – β_GE × Average_{S&P 500}
= 1.40% – 1.18 × 1.11%
= 0.09%

Expected Rate of Return

Assumptions
Rate of return on LT Treasury Composite¹	R_F	4.81%
Expected rate of return on market portfolio²	E(R_M)	13.54%
Systematic risk (β) of General Electric Co. common stock	β_GE	1.18

Expected rate of return on General Electric Co. common stock³	E(R_GE)	15.14%

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(R_GE) = R_F + β_GE [E(R_M) – R_F]
= 4.81% + 1.18 [13.54% – 4.81%]
= 15.14%