Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Lowe’s Cos. Inc. (NYSE:LOW)

Capital Asset Pricing Model (CAPM)

Intermediate level

Rates of Return

Lowe’s Cos. Inc., monthly rates of return

Microsoft Excel LibreOffice Calc
Lowe’s Cos. Inc. (LOW) Standard & Poor’s 500 (S&P 500)
t Date PriceLOW,t1 DividendLOW,t1 RLOW,t2 PriceS&P 500,t RS&P 500,t3
Feb 28, 2014 50.03 1,859.45
1. Mar 31, 2014 48.90 -2.26% 1,872.34 0.69%
2. Apr 30, 2014 45.91 0.18 -5.75% 1,883.95 0.62%
3. May 31, 2014 47.08 2.55% 1,923.57 2.10%
. . . . . . .
. . . . . . .
. . . . . . .
70. Dec 31, 2019 119.76 2.09% 3,230.78 2.86%
71. Jan 31, 2020 116.24 0.55 -2.48% 3,225.52 -0.16%
Average: 1.57% 0.83%
Standard deviation: 6.65% 3.24%
Lowe’s Cos. Inc. (LOW) Standard & Poor’s 500 (S&P 500)
t Date PriceLOW,t1 DividendLOW,t1 RLOW,t2 PriceS&P 500,t RS&P 500,t3
Feb 28, 2014 50.03 1,859.45
1. Mar 31, 2014 48.90 -2.26% 1,872.34 0.69%
2. Apr 30, 2014 45.91 0.18 -5.75% 1,883.95 0.62%
3. May 31, 2014 47.08 2.55% 1,923.57 2.10%
4. Jun 30, 2014 47.99 1.93% 1,960.23 1.91%
5. Jul 31, 2014 47.85 0.23 0.19% 1,930.67 -1.51%
6. Aug 31, 2014 52.51 9.74% 2,003.37 3.77%
7. Sep 30, 2014 52.92 0.78% 1,972.29 -1.55%
8. Oct 31, 2014 57.20 0.23 8.52% 2,018.05 2.32%
9. Nov 30, 2014 63.83 11.59% 2,067.56 2.45%
10. Dec 31, 2014 68.80 7.79% 2,058.90 -0.42%
11. Jan 31, 2015 67.76 0.23 -1.18% 1,994.99 -3.10%
12. Feb 28, 2015 74.09 9.34% 2,104.50 5.49%
13. Mar 31, 2015 74.39 0.40% 2,067.89 -1.74%
14. Apr 30, 2015 68.86 0.23 -7.12% 2,085.51 0.85%
15. May 31, 2015 69.98 1.63% 2,107.39 1.05%
16. Jun 30, 2015 66.97 -4.30% 2,063.11 -2.10%
17. Jul 31, 2015 69.36 0.28 3.99% 2,103.84 1.97%
18. Aug 31, 2015 69.17 -0.27% 1,972.18 -6.26%
19. Sep 30, 2015 68.92 -0.36% 1,920.03 -2.64%
20. Oct 31, 2015 73.83 0.28 7.53% 2,079.36 8.30%
21. Nov 30, 2015 76.60 3.75% 2,080.41 0.05%
22. Dec 31, 2015 76.04 -0.73% 2,043.94 -1.75%
23. Jan 31, 2016 71.66 0.28 -5.39% 1,940.24 -5.07%
24. Feb 29, 2016 67.53 -5.76% 1,932.23 -0.41%
25. Mar 31, 2016 75.75 12.17% 2,059.74 6.60%
26. Apr 30, 2016 76.02 0.28 0.73% 2,065.30 0.27%
27. May 31, 2016 80.13 5.41% 2,096.95 1.53%
28. Jun 30, 2016 79.17 -1.20% 2,098.86 0.09%
29. Jul 31, 2016 82.28 0.35 4.37% 2,173.60 3.56%
30. Aug 31, 2016 76.56 -6.95% 2,170.95 -0.12%
31. Sep 30, 2016 72.21 -5.68% 2,168.27 -0.12%
32. Oct 31, 2016 66.65 0.35 -7.22% 2,126.15 -1.94%
33. Nov 30, 2016 70.55 5.85% 2,198.81 3.42%
34. Dec 31, 2016 71.12 0.81% 2,238.83 1.82%
35. Jan 31, 2017 73.08 0.35 3.25% 2,278.87 1.79%
36. Feb 28, 2017 74.37 1.77% 2,363.64 3.72%
37. Mar 31, 2017 82.21 10.54% 2,362.72 -0.04%
38. Apr 30, 2017 84.88 0.35 3.67% 2,384.20 0.91%
39. May 31, 2017 78.77 -7.20% 2,411.80 1.16%
40. Jun 30, 2017 77.53 -1.57% 2,423.41 0.48%
41. Jul 31, 2017 77.40 0.41 0.36% 2,470.30 1.93%
42. Aug 31, 2017 73.89 -4.53% 2,471.65 0.05%
43. Sep 30, 2017 79.94 8.19% 2,519.36 1.93%
44. Oct 31, 2017 79.95 0.41 0.53% 2,575.26 2.22%
45. Nov 30, 2017 83.37 4.28% 2,647.58 2.81%
46. Dec 31, 2017 92.94 11.48% 2,673.61 0.98%
47. Jan 31, 2018 104.73 0.41 13.13% 2,823.81 5.62%
48. Feb 28, 2018 89.59 -14.46% 2,713.83 -3.89%
49. Mar 31, 2018 87.75 -2.05% 2,640.87 -2.69%
50. Apr 30, 2018 82.43 0.41 -5.60% 2,648.05 0.27%
51. May 31, 2018 95.01 15.26% 2,705.27 2.16%
52. Jun 30, 2018 95.57 0.59% 2,718.37 0.48%
53. Jul 31, 2018 99.34 0.48 4.45% 2,816.29 3.60%
54. Aug 31, 2018 108.75 9.47% 2,901.52 3.03%
55. Sep 30, 2018 114.82 5.58% 2,913.98 0.43%
56. Oct 31, 2018 95.22 0.48 -16.65% 2,711.74 -6.94%
57. Nov 30, 2018 94.37 -0.89% 2,760.17 1.79%
58. Dec 31, 2018 92.36 -2.13% 2,506.85 -9.18%
59. Jan 31, 2019 96.16 0.48 4.63% 2,704.10 7.87%
60. Feb 28, 2019 105.09 9.29% 2,784.49 2.97%
61. Mar 31, 2019 109.47 4.17% 2,834.40 1.79%
62. Apr 30, 2019 113.14 0.48 3.79% 2,945.83 3.93%
63. May 31, 2019 93.28 -17.55% 2,752.06 -6.58%
64. Jun 30, 2019 100.91 8.18% 2,941.76 6.89%
65. Jul 31, 2019 101.40 0.55 1.03% 2,980.38 1.31%
66. Aug 31, 2019 112.20 10.65% 2,926.46 -1.81%
67. Sep 30, 2019 109.96 -2.00% 2,976.74 1.72%
68. Oct 31, 2019 111.61 0.55 2.00% 3,037.56 2.04%
69. Nov 30, 2019 117.31 5.11% 3,140.98 3.40%
70. Dec 31, 2019 119.76 2.09% 3,230.78 2.86%
71. Jan 31, 2020 116.24 0.55 -2.48% 3,225.52 -0.16%
Average: 1.57% 0.83%
Standard deviation: 6.65% 3.24%

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 LOW during period t

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


Systematic Risk (β) Estimation

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VarianceLOW 44.16
VarianceS&P 500 10.49
CovarianceLOW, S&P 500 13.65
Correlation coefficientLOW, S&P 5001 0.63
βLOW2 1.30
αLOW3 0.49

Calculations

1 Correlation coefficientLOW, S&P 500
= CovarianceLOW, S&P 500 ÷ (Standard deviationLOW × Standard deviationS&P 500)
= 13.65 ÷ (6.65 × 3.24)

2 βLOW
= CovarianceLOW, S&P 500 ÷ VarianceS&P 500
= 13.65 ÷ 10.49

3 αLOW
= AverageLOW – βLOW × AverageS&P 500
= 1.571.30 × 0.83


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 1.23%
Expected rate of return on market portfolio2 E(RM) 12.05%
Systematic risk (β) of Lowe’s Cos. Inc.’s common stock βLOW 1.30
 
Expected rate of return on Lowe’s Cos. Inc.’s common stock3 E(RLOW) 15.31%

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(RLOW) = RF + βLOW [E(RM) – RF]
= 1.23% + 1.30 [12.05%1.23%]
= 15.31%