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 Johnson & Johnson common stock.
Rates of Return
Johnson & Johnson, monthly rates of return
| Johnson & Johnson (JNJ) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceJNJ,t1 | DividendJNJ,t1 | RJNJ,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2021 | $163.13 | 3,714.24 | ||||
| 1. | Feb 28, 2021 | $158.46 | $1.01 | -2.24% | 3,811.15 | 2.61% |
| 2. | Mar 31, 2021 | $164.35 | 3.72% | 3,972.89 | 4.24% | |
| 3. | Apr 30, 2021 | $162.73 | -0.99% | 4,181.17 | 5.24% | |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 58. | Nov 30, 2025 | $206.92 | $1.30 | 10.25% | 6,849.09 | 0.13% |
| 59. | Dec 31, 2025 | $206.95 | 0.01% | 6,845.50 | -0.05% | |
| Average (R): | 0.75% | 1.14% | ||||
| Standard deviation: | 4.71% | 4.37% | ||||
| Johnson & Johnson (JNJ) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceJNJ,t1 | DividendJNJ,t1 | RJNJ,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2021 | $163.13 | 3,714.24 | ||||
| 1. | Feb 28, 2021 | $158.46 | $1.01 | -2.24% | 3,811.15 | 2.61% |
| 2. | Mar 31, 2021 | $164.35 | 3.72% | 3,972.89 | 4.24% | |
| 3. | Apr 30, 2021 | $162.73 | -0.99% | 4,181.17 | 5.24% | |
| 4. | May 31, 2021 | $169.25 | $1.06 | 4.66% | 4,204.11 | 0.55% |
| 5. | Jun 30, 2021 | $164.74 | -2.66% | 4,297.50 | 2.22% | |
| 6. | Jul 31, 2021 | $172.20 | 4.53% | 4,395.26 | 2.27% | |
| 7. | Aug 31, 2021 | $173.13 | $1.06 | 1.16% | 4,522.68 | 2.90% |
| 8. | Sep 30, 2021 | $161.50 | -6.72% | 4,307.54 | -4.76% | |
| 9. | Oct 31, 2021 | $162.88 | 0.85% | 4,605.38 | 6.91% | |
| 10. | Nov 30, 2021 | $155.93 | $1.06 | -3.62% | 4,567.00 | -0.83% |
| 11. | Dec 31, 2021 | $171.07 | 9.71% | 4,766.18 | 4.36% | |
| 12. | Jan 31, 2022 | $172.29 | 0.71% | 4,515.55 | -5.26% | |
| 13. | Feb 28, 2022 | $164.57 | $1.06 | -3.87% | 4,373.94 | -3.14% |
| 14. | Mar 31, 2022 | $177.23 | 7.69% | 4,530.41 | 3.58% | |
| 15. | Apr 30, 2022 | $180.46 | 1.82% | 4,131.93 | -8.80% | |
| 16. | May 31, 2022 | $179.53 | $1.13 | 0.11% | 4,132.15 | 0.01% |
| 17. | Jun 30, 2022 | $177.51 | -1.13% | 3,785.38 | -8.39% | |
| 18. | Jul 31, 2022 | $174.52 | -1.68% | 4,130.29 | 9.11% | |
| 19. | Aug 31, 2022 | $161.34 | $1.13 | -6.90% | 3,955.00 | -4.24% |
| 20. | Sep 30, 2022 | $163.36 | 1.25% | 3,585.62 | -9.34% | |
| 21. | Oct 31, 2022 | $173.97 | 6.49% | 3,871.98 | 7.99% | |
| 22. | Nov 30, 2022 | $178.00 | $1.13 | 2.97% | 4,080.11 | 5.38% |
| 23. | Dec 31, 2022 | $176.65 | -0.76% | 3,839.50 | -5.90% | |
| 24. | Jan 31, 2023 | $163.42 | -7.49% | 4,076.60 | 6.18% | |
| 25. | Feb 28, 2023 | $153.26 | $1.13 | -5.53% | 3,970.15 | -2.61% |
| 26. | Mar 31, 2023 | $155.00 | 1.14% | 4,109.31 | 3.51% | |
| 27. | Apr 30, 2023 | $163.70 | 5.61% | 4,169.48 | 1.46% | |
| 28. | May 31, 2023 | $155.06 | $1.19 | -4.55% | 4,179.83 | 0.25% |
| 29. | Jun 30, 2023 | $165.52 | 6.75% | 4,376.86 | 4.71% | |
| 30. | Jul 31, 2023 | $167.53 | 1.21% | 4,588.96 | 4.85% | |
| 31. | Aug 31, 2023 | $161.68 | $1.19 | -2.78% | 4,507.66 | -1.77% |
| 32. | Sep 30, 2023 | $155.75 | -3.67% | 4,288.05 | -4.87% | |
| 33. | Oct 31, 2023 | $148.34 | -4.76% | 4,193.80 | -2.20% | |
| 34. | Nov 30, 2023 | $154.66 | $1.19 | 5.06% | 4,567.80 | 8.92% |
| 35. | Dec 31, 2023 | $156.74 | 1.34% | 4,769.83 | 4.42% | |
| 36. | Jan 31, 2024 | $158.90 | 1.38% | 4,845.65 | 1.59% | |
| 37. | Feb 29, 2024 | $161.38 | $1.19 | 2.31% | 5,096.27 | 5.17% |
| 38. | Mar 31, 2024 | $158.19 | -1.98% | 5,254.35 | 3.10% | |
| 39. | Apr 30, 2024 | $144.59 | -8.60% | 5,035.69 | -4.16% | |
| 40. | May 31, 2024 | $146.67 | $1.24 | 2.30% | 5,277.51 | 4.80% |
| 41. | Jun 30, 2024 | $146.16 | -0.35% | 5,460.48 | 3.47% | |
| 42. | Jul 31, 2024 | $157.85 | 8.00% | 5,522.30 | 1.13% | |
| 43. | Aug 31, 2024 | $165.86 | $1.24 | 5.86% | 5,648.40 | 2.28% |
| 44. | Sep 30, 2024 | $162.06 | -2.29% | 5,762.48 | 2.02% | |
| 45. | Oct 31, 2024 | $159.86 | -1.36% | 5,705.45 | -0.99% | |
| 46. | Nov 30, 2024 | $155.01 | $1.24 | -2.26% | 6,032.38 | 5.73% |
| 47. | Dec 31, 2024 | $144.62 | -6.70% | 5,881.63 | -2.50% | |
| 48. | Jan 31, 2025 | $152.15 | 5.21% | 6,040.53 | 2.70% | |
| 49. | Feb 28, 2025 | $165.02 | $1.24 | 9.27% | 5,954.50 | -1.42% |
| 50. | Mar 31, 2025 | $165.84 | 0.50% | 5,611.85 | -5.75% | |
| 51. | Apr 30, 2025 | $156.31 | -5.75% | 5,569.06 | -0.76% | |
| 52. | May 31, 2025 | $155.21 | $1.30 | 0.13% | 5,911.69 | 6.15% |
| 53. | Jun 30, 2025 | $152.75 | -1.58% | 6,204.95 | 4.96% | |
| 54. | Jul 31, 2025 | $164.74 | 7.85% | 6,339.39 | 2.17% | |
| 55. | Aug 31, 2025 | $177.17 | $1.30 | 8.33% | 6,460.26 | 1.91% |
| 56. | Sep 30, 2025 | $185.42 | 4.66% | 6,688.46 | 3.53% | |
| 57. | Oct 31, 2025 | $188.87 | 1.86% | 6,840.20 | 2.27% | |
| 58. | Nov 30, 2025 | $206.92 | $1.30 | 10.25% | 6,849.09 | 0.13% |
| 59. | Dec 31, 2025 | $206.95 | 0.01% | 6,845.50 | -0.05% | |
| Average (R): | 0.75% | 1.14% | ||||
| Standard deviation: | 4.71% | 4.37% | ||||
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of JNJ during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Johnson & Johnson, calculation of variance and covariance of returns
| t | Date | RJNJ,t | RS&P 500,t | (RJNJ,t–RJNJ)2 | (RS&P 500,t–RS&P 500)2 | (RJNJ,t–RJNJ)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Feb 28, 2021 | -2.24% | 2.61% | 8.99 | 2.17 | -4.42 |
| 2. | Mar 31, 2021 | 3.72% | 4.24% | 8.78 | 9.66 | 9.21 |
| 3. | Apr 30, 2021 | -0.99% | 5.24% | 3.03 | 16.86 | -7.14 |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 58. | Nov 30, 2025 | 10.25% | 0.13% | 90.08 | 1.01 | -9.55 |
| 59. | Dec 31, 2025 | 0.01% | -0.05% | 0.55 | 1.41 | 0.88 |
| Total (Σ): | 1,287.31 | 1,108.23 | 379.61 | |||
| t | Date | RJNJ,t | RS&P 500,t | (RJNJ,t–RJNJ)2 | (RS&P 500,t–RS&P 500)2 | (RJNJ,t–RJNJ)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Feb 28, 2021 | -2.24% | 2.61% | 8.99 | 2.17 | -4.42 |
| 2. | Mar 31, 2021 | 3.72% | 4.24% | 8.78 | 9.66 | 9.21 |
| 3. | Apr 30, 2021 | -0.99% | 5.24% | 3.03 | 16.86 | -7.14 |
| 4. | May 31, 2021 | 4.66% | 0.55% | 15.24 | 0.35 | -2.29 |
| 5. | Jun 30, 2021 | -2.66% | 2.22% | 11.69 | 1.18 | -3.71 |
| 6. | Jul 31, 2021 | 4.53% | 2.27% | 14.24 | 1.30 | 4.30 |
| 7. | Aug 31, 2021 | 1.16% | 2.90% | 0.16 | 3.11 | 0.71 |
| 8. | Sep 30, 2021 | -6.72% | -4.76% | 55.83 | 34.73 | 44.03 |
| 9. | Oct 31, 2021 | 0.85% | 6.91% | 0.01 | 33.39 | 0.58 |
| 10. | Nov 30, 2021 | -3.62% | -0.83% | 19.10 | 3.88 | 8.61 |
| 11. | Dec 31, 2021 | 9.71% | 4.36% | 80.20 | 10.40 | 28.88 |
| 12. | Jan 31, 2022 | 0.71% | -5.26% | 0.00 | 40.89 | 0.26 |
| 13. | Feb 28, 2022 | -3.87% | -3.14% | 21.34 | 18.25 | 19.74 |
| 14. | Mar 31, 2022 | 7.69% | 3.58% | 48.14 | 5.96 | 16.94 |
| 15. | Apr 30, 2022 | 1.82% | -8.80% | 1.14 | 98.64 | -10.61 |
| 16. | May 31, 2022 | 0.11% | 0.01% | 0.41 | 1.28 | 0.73 |
| 17. | Jun 30, 2022 | -1.13% | -8.39% | 3.53 | 90.79 | 17.91 |
| 18. | Jul 31, 2022 | -1.68% | 9.11% | 5.95 | 63.61 | -19.45 |
| 19. | Aug 31, 2022 | -6.90% | -4.24% | 58.66 | 28.95 | 41.21 |
| 20. | Sep 30, 2022 | 1.25% | -9.34% | 0.25 | 109.74 | -5.22 |
| 21. | Oct 31, 2022 | 6.49% | 7.99% | 32.96 | 46.93 | 39.32 |
| 22. | Nov 30, 2022 | 2.97% | 5.38% | 4.89 | 17.97 | 9.38 |
| 23. | Dec 31, 2022 | -0.76% | -5.90% | 2.29 | 49.47 | 10.64 |
| 24. | Jan 31, 2023 | -7.49% | 6.18% | 67.96 | 25.39 | -41.54 |
| 25. | Feb 28, 2023 | -5.53% | -2.61% | 39.44 | 14.04 | 23.53 |
| 26. | Mar 31, 2023 | 1.14% | 3.51% | 0.15 | 5.61 | 0.90 |
| 27. | Apr 30, 2023 | 5.61% | 1.46% | 23.61 | 0.11 | 1.59 |
| 28. | May 31, 2023 | -4.55% | 0.25% | 28.15 | 0.79 | 4.71 |
| 29. | Jun 30, 2023 | 6.75% | 4.71% | 35.90 | 12.80 | 21.44 |
| 30. | Jul 31, 2023 | 1.21% | 4.85% | 0.21 | 13.76 | 1.71 |
| 31. | Aug 31, 2023 | -2.78% | -1.77% | 12.50 | 8.46 | 10.28 |
| 32. | Sep 30, 2023 | -3.67% | -4.87% | 19.55 | 36.10 | 26.57 |
| 33. | Oct 31, 2023 | -4.76% | -2.20% | 30.38 | 11.12 | 18.38 |
| 34. | Nov 30, 2023 | 5.06% | 8.92% | 18.56 | 60.56 | 33.53 |
| 35. | Dec 31, 2023 | 1.34% | 4.42% | 0.35 | 10.80 | 1.94 |
| 36. | Jan 31, 2024 | 1.38% | 1.59% | 0.39 | 0.21 | 0.28 |
| 37. | Feb 29, 2024 | 2.31% | 5.17% | 2.42 | 16.29 | 6.28 |
| 38. | Mar 31, 2024 | -1.98% | 3.10% | 7.46 | 3.86 | -5.37 |
| 39. | Apr 30, 2024 | -8.60% | -4.16% | 87.45 | 28.06 | 49.54 |
| 40. | May 31, 2024 | 2.30% | 4.80% | 2.38 | 13.44 | 5.65 |
| 41. | Jun 30, 2024 | -0.35% | 3.47% | 1.21 | 5.43 | -2.57 |
| 42. | Jul 31, 2024 | 8.00% | 1.13% | 52.47 | 0.00 | -0.03 |
| 43. | Aug 31, 2024 | 5.86% | 2.28% | 26.07 | 1.32 | 5.86 |
| 44. | Sep 30, 2024 | -2.29% | 2.02% | 9.27 | 0.78 | -2.69 |
| 45. | Oct 31, 2024 | -1.36% | -0.99% | 4.46 | 4.52 | 4.49 |
| 46. | Nov 30, 2024 | -2.26% | 5.73% | 9.07 | 21.10 | -13.84 |
| 47. | Dec 31, 2024 | -6.70% | -2.50% | 55.61 | 13.21 | 27.11 |
| 48. | Jan 31, 2025 | 5.21% | 2.70% | 19.83 | 2.45 | 6.97 |
| 49. | Feb 28, 2025 | 9.27% | -1.42% | 72.58 | 6.56 | -21.81 |
| 50. | Mar 31, 2025 | 0.50% | -5.75% | 0.07 | 47.48 | 1.77 |
| 51. | Apr 30, 2025 | -5.75% | -0.76% | 42.26 | 3.60 | 12.34 |
| 52. | May 31, 2025 | 0.13% | 6.15% | 0.39 | 25.16 | -3.14 |
| 53. | Jun 30, 2025 | -1.58% | 4.96% | 5.47 | 14.63 | -8.95 |
| 54. | Jul 31, 2025 | 7.85% | 2.17% | 50.34 | 1.06 | 7.31 |
| 55. | Aug 31, 2025 | 8.33% | 1.91% | 57.46 | 0.59 | 5.84 |
| 56. | Sep 30, 2025 | 4.66% | 3.53% | 15.23 | 5.74 | 9.35 |
| 57. | Oct 31, 2025 | 1.86% | 2.27% | 1.22 | 1.28 | 1.25 |
| 58. | Nov 30, 2025 | 10.25% | 0.13% | 90.08 | 1.01 | -9.55 |
| 59. | Dec 31, 2025 | 0.01% | -0.05% | 0.55 | 1.41 | 0.88 |
| Total (Σ): | 1,287.31 | 1,108.23 | 379.61 | |||
Show all
VarianceJNJ = Σ(RJNJ,t–RJNJ)2 ÷ (59 – 1)
= 1,287.31 ÷ (59 – 1)
= 22.20
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (59 – 1)
= 1,108.23 ÷ (59 – 1)
= 19.11
CovarianceJNJ, S&P 500 = Σ(RJNJ,t–RJNJ)×(RS&P 500,t–RS&P 500) ÷ (59 – 1)
= 379.61 ÷ (59 – 1)
= 6.55
Systematic Risk (β) Estimation
| VarianceJNJ | 22.20 |
| VarianceS&P 500 | 19.11 |
| CovarianceJNJ, S&P 500 | 6.55 |
| Correlation coefficientJNJ, S&P 5001 | 0.32 |
| βJNJ2 | 0.34 |
| αJNJ3 | 0.37% |
Calculations
1 Correlation coefficientJNJ, S&P 500
= CovarianceJNJ, S&P 500 ÷ (Standard deviationJNJ × Standard deviationS&P 500)
= 6.55 ÷ (4.71% × 4.37%)
= 0.32
2 βJNJ
= CovarianceJNJ, S&P 500 ÷ VarianceS&P 500
= 6.55 ÷ 19.11
= 0.34
3 αJNJ
= AverageJNJ – βJNJ × AverageS&P 500
= 0.75% – 0.34 × 1.14%
= 0.37%
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | 4.54% |
| Expected rate of return on market portfolio2 | E(RM) | 17.37% |
| Systematic risk (β) of Johnson & Johnson common stock | βJNJ | 0.34 |
| Expected rate of return on Johnson & Johnson common stock3 | E(RJNJ) | 8.93% |
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(RJNJ) = RF + βJNJ [E(RM) – RF]
= 4.54% + 0.34 [17.37% – 4.54%]
= 8.93%