Stock Analysis on Net

McDonald’s Corp. (NYSE:MCD)

Capital Asset Pricing Model (CAPM) 

Microsoft Excel

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like McDonald’s Corp. common stock.


Rates of Return

McDonald’s Corp., monthly rates of return

Microsoft Excel
McDonald’s Corp. (MCD) Standard & Poor’s 500 (S&P 500)
t Date PriceMCD,t1 DividendMCD,t1 RMCD,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2019 $178.78 2,704.10
1. Feb 28, 2019 $183.84 $1.16 3.48% 2,784.49 2.97%
2. Mar 31, 2019 $189.90 3.30% 2,834.40 1.79%
3. Apr 30, 2019 $197.57 4.04% 2,945.83 3.93%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2023 $281.84 $1.67 8.14% 4,567.80 8.92%
59. Dec 31, 2023 $296.51 5.21% 4,769.83 4.42%
Average (R): 1.21% 1.11%
Standard deviation: 5.57% 5.31%
McDonald’s Corp. (MCD) Standard & Poor’s 500 (S&P 500)
t Date PriceMCD,t1 DividendMCD,t1 RMCD,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2019 $178.78 2,704.10
1. Feb 28, 2019 $183.84 $1.16 3.48% 2,784.49 2.97%
2. Mar 31, 2019 $189.90 3.30% 2,834.40 1.79%
3. Apr 30, 2019 $197.57 4.04% 2,945.83 3.93%
4. May 31, 2019 $198.27 $1.16 0.94% 2,752.06 -6.58%
5. Jun 30, 2019 $207.66 4.74% 2,941.76 6.89%
6. Jul 31, 2019 $210.72 1.47% 2,980.38 1.31%
7. Aug 31, 2019 $217.97 $1.16 3.99% 2,926.46 -1.81%
8. Sep 30, 2019 $214.71 -1.50% 2,976.74 1.72%
9. Oct 31, 2019 $196.70 -8.39% 3,037.56 2.04%
10. Nov 30, 2019 $194.48 $1.25 -0.49% 3,140.98 3.40%
11. Dec 31, 2019 $197.61 1.61% 3,230.78 2.86%
12. Jan 31, 2020 $213.97 8.28% 3,225.52 -0.16%
13. Feb 29, 2020 $194.17 $1.25 -8.67% 2,954.22 -8.41%
14. Mar 31, 2020 $165.35 -14.84% 2,584.59 -12.51%
15. Apr 30, 2020 $187.56 13.43% 2,912.43 12.68%
16. May 31, 2020 $186.32 $1.25 0.01% 3,044.31 4.53%
17. Jun 30, 2020 $184.47 -0.99% 3,100.29 1.84%
18. Jul 31, 2020 $194.28 5.32% 3,271.12 5.51%
19. Aug 31, 2020 $213.52 $1.25 10.55% 3,500.31 7.01%
20. Sep 30, 2020 $219.49 2.80% 3,363.00 -3.92%
21. Oct 31, 2020 $213.00 -2.96% 3,269.96 -2.77%
22. Nov 30, 2020 $217.44 $1.29 2.69% 3,621.63 10.75%
23. Dec 31, 2020 $214.58 -1.32% 3,756.07 3.71%
24. Jan 31, 2021 $207.84 -3.14% 3,714.24 -1.11%
25. Feb 28, 2021 $206.14 $1.29 -0.20% 3,811.15 2.61%
26. Mar 31, 2021 $224.14 8.73% 3,972.89 4.24%
27. Apr 30, 2021 $236.08 5.33% 4,181.17 5.24%
28. May 31, 2021 $233.89 $1.29 -0.38% 4,204.11 0.55%
29. Jun 30, 2021 $230.99 -1.24% 4,297.50 2.22%
30. Jul 31, 2021 $242.71 5.07% 4,395.26 2.27%
31. Aug 31, 2021 $237.46 $1.29 -1.63% 4,522.68 2.90%
32. Sep 30, 2021 $241.11 1.54% 4,307.54 -4.76%
33. Oct 31, 2021 $245.55 1.84% 4,605.38 6.91%
34. Nov 30, 2021 $244.60 $1.38 0.18% 4,567.00 -0.83%
35. Dec 31, 2021 $268.07 9.60% 4,766.18 4.36%
36. Jan 31, 2022 $259.45 -3.22% 4,515.55 -5.26%
37. Feb 28, 2022 $244.77 $1.38 -5.13% 4,373.94 -3.14%
38. Mar 31, 2022 $247.28 1.03% 4,530.41 3.58%
39. Apr 30, 2022 $249.16 0.76% 4,131.93 -8.80%
40. May 31, 2022 $252.21 1.22% 4,132.15 0.01%
41. Jun 30, 2022 $246.88 $1.38 -1.57% 3,785.38 -8.39%
42. Jul 31, 2022 $263.37 6.68% 4,130.29 9.11%
43. Aug 31, 2022 $252.28 $1.38 -3.69% 3,955.00 -4.24%
44. Sep 30, 2022 $230.74 -8.54% 3,585.62 -9.34%
45. Oct 31, 2022 $272.66 18.17% 3,871.98 7.99%
46. Nov 30, 2022 $272.79 $1.52 0.61% 4,080.11 5.38%
47. Dec 31, 2022 $263.53 -3.39% 3,839.50 -5.90%
48. Jan 31, 2023 $267.40 1.47% 4,076.60 6.18%
49. Feb 28, 2023 $263.91 $1.52 -0.74% 3,970.15 -2.61%
50. Mar 31, 2023 $279.61 5.95% 4,109.31 3.51%
51. Apr 30, 2023 $295.75 5.77% 4,169.48 1.46%
52. May 31, 2023 $285.11 -3.60% 4,179.83 0.25%
53. Jun 30, 2023 $298.41 $1.52 5.20% 4,376.86 4.71%
54. Jul 31, 2023 $293.20 -1.75% 4,588.96 4.85%
55. Aug 31, 2023 $281.15 $1.52 -3.59% 4,507.66 -1.77%
56. Sep 30, 2023 $263.44 -6.30% 4,288.05 -4.87%
57. Oct 31, 2023 $262.17 -0.48% 4,193.80 -2.20%
58. Nov 30, 2023 $281.84 $1.67 8.14% 4,567.80 8.92%
59. Dec 31, 2023 $296.51 5.21% 4,769.83 4.42%
Average (R): 1.21% 1.11%
Standard deviation: 5.57% 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 MCD during period t

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


Variance and Covariance

McDonald’s Corp., calculation of variance and covariance of returns

Microsoft Excel
t Date RMCD,t RS&P 500,t (RMCD,tRMCD)2 (RS&P 500,tRS&P 500)2 (RMCD,tRMCD)×(RS&P 500,tRS&P 500)
1. Feb 28, 2019 3.48% 2.97% 5.15 3.49 4.24
2. Mar 31, 2019 3.30% 1.79% 4.35 0.47 1.43
3. Apr 30, 2019 4.04% 3.93% 8.00 7.98 7.99
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2023 8.14% 8.92% 48.02 61.03 54.14
59. Dec 31, 2023 5.21% 4.42% 15.96 11.00 13.25
Total (Σ): 1,798.52 1,634.30 1,183.72
t Date RMCD,t RS&P 500,t (RMCD,tRMCD)2 (RS&P 500,tRS&P 500)2 (RMCD,tRMCD)×(RS&P 500,tRS&P 500)
1. Feb 28, 2019 3.48% 2.97% 5.15 3.49 4.24
2. Mar 31, 2019 3.30% 1.79% 4.35 0.47 1.43
3. Apr 30, 2019 4.04% 3.93% 8.00 7.98 7.99
4. May 31, 2019 0.94% -6.58% 0.07 59.04 2.06
5. Jun 30, 2019 4.74% 6.89% 12.43 33.49 20.41
6. Jul 31, 2019 1.47% 1.31% 0.07 0.04 0.05
7. Aug 31, 2019 3.99% -1.81% 7.73 8.50 -8.11
8. Sep 30, 2019 -1.50% 1.72% 7.32 0.37 -1.66
9. Oct 31, 2019 -8.39% 2.04% 92.12 0.88 -9.00
10. Nov 30, 2019 -0.49% 3.40% 2.90 5.28 -3.92
11. Dec 31, 2019 1.61% 2.86% 0.16 3.07 0.70
12. Jan 31, 2020 8.28% -0.16% 49.97 1.61 -8.97
13. Feb 29, 2020 -8.67% -8.41% 97.60 90.57 94.02
14. Mar 31, 2020 -14.84% -12.51% 257.68 185.44 218.60
15. Apr 30, 2020 13.43% 12.68% 149.38 134.06 141.52
16. May 31, 2020 0.01% 4.53% 1.45 11.71 -4.12
17. Jun 30, 2020 -0.99% 1.84% 4.85 0.54 -1.61
18. Jul 31, 2020 5.32% 5.51% 16.88 19.40 18.09
19. Aug 31, 2020 10.55% 7.01% 87.17 34.82 55.09
20. Sep 30, 2020 2.80% -3.92% 2.52 25.29 -7.98
21. Oct 31, 2020 -2.96% -2.77% 17.36 15.00 16.14
22. Nov 30, 2020 2.69% 10.75% 2.19 93.10 14.28
23. Dec 31, 2020 -1.32% 3.71% 6.38 6.79 -6.58
24. Jan 31, 2021 -3.14% -1.11% 18.93 4.93 9.66
25. Feb 28, 2021 -0.20% 2.61% 1.98 2.26 -2.12
26. Mar 31, 2021 8.73% 4.24% 56.58 9.85 23.60
27. Apr 30, 2021 5.33% 5.24% 16.95 17.11 17.03
28. May 31, 2021 -0.38% 0.55% 2.53 0.31 0.89
29. Jun 30, 2021 -1.24% 2.22% 6.00 1.24 -2.73
30. Jul 31, 2021 5.07% 2.27% 14.93 1.37 4.52
31. Aug 31, 2021 -1.63% 2.90% 8.07 3.22 -5.10
32. Sep 30, 2021 1.54% -4.76% 0.11 34.37 -1.92
33. Oct 31, 2021 1.84% 6.91% 0.40 33.74 3.67
34. Nov 30, 2021 0.18% -0.83% 1.07 3.76 2.01
35. Dec 31, 2021 9.60% 4.36% 70.31 10.60 27.30
36. Jan 31, 2022 -3.22% -5.26% 19.58 40.51 28.17
37. Feb 28, 2022 -5.13% -3.14% 40.15 17.99 26.88
38. Mar 31, 2022 1.03% 3.58% 0.03 6.11 -0.46
39. Apr 30, 2022 0.76% -8.80% 0.20 98.04 4.45
40. May 31, 2022 1.22% 0.01% 0.00 1.21 -0.02
41. Jun 30, 2022 -1.57% -8.39% 7.71 90.21 26.37
42. Jul 31, 2022 6.68% 9.11% 29.91 64.09 43.79
43. Aug 31, 2022 -3.69% -4.24% 23.98 28.62 26.20
44. Sep 30, 2022 -8.54% -9.34% 95.02 109.11 101.82
45. Oct 31, 2022 18.17% 7.99% 287.56 47.34 116.68
46. Nov 30, 2022 0.61% 5.38% 0.37 18.23 -2.58
47. Dec 31, 2022 -3.39% -5.90% 21.20 49.04 32.24
48. Jan 31, 2023 1.47% 6.18% 0.07 25.70 1.31
49. Feb 28, 2023 -0.74% -2.61% 3.79 13.82 7.24
50. Mar 31, 2023 5.95% 3.51% 22.46 5.76 11.37
51. Apr 30, 2023 5.77% 1.46% 20.82 0.13 1.64
52. May 31, 2023 -3.60% 0.25% 23.11 0.74 4.12
53. Jun 30, 2023 5.20% 4.71% 15.90 13.02 14.39
54. Jul 31, 2023 -1.75% 4.85% 8.74 13.99 -11.06
55. Aug 31, 2023 -3.59% -1.77% 23.05 8.28 13.82
56. Sep 30, 2023 -6.30% -4.87% 56.39 35.73 44.89
57. Oct 31, 2023 -0.48% -2.20% 2.86 10.92 5.59
58. Nov 30, 2023 8.14% 8.92% 48.02 61.03 54.14
59. Dec 31, 2023 5.21% 4.42% 15.96 11.00 13.25
Total (Σ): 1,798.52 1,634.30 1,183.72

Show all

VarianceMCD = Σ(RMCD,tRMCD)2 ÷ (59 – 1)
= 1,798.52 ÷ (59 – 1)
= 31.01

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= 1,634.30 ÷ (59 – 1)
= 28.18

CovarianceMCD, S&P 500 = Σ(RMCD,tRMCD)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= 1,183.72 ÷ (59 – 1)
= 20.41


Systematic Risk (β) Estimation

Microsoft Excel
VarianceMCD 31.01
VarianceS&P 500 28.18
CovarianceMCD, S&P 500 20.41
Correlation coefficientMCD, S&P 5001 0.69
βMCD2 0.72
αMCD3 0.41%

Calculations

1 Correlation coefficientMCD, S&P 500
= CovarianceMCD, S&P 500 ÷ (Standard deviationMCD × Standard deviationS&P 500)
= 20.41 ÷ (5.57% × 5.31%)
= 0.69

2 βMCD
= CovarianceMCD, S&P 500 ÷ VarianceS&P 500
= 20.41 ÷ 28.18
= 0.72

3 αMCD
= AverageMCD – βMCD × AverageS&P 500
= 1.21%0.72 × 1.11%
= 0.41%


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.55%
Expected rate of return on market portfolio2 E(RM) 13.83%
Systematic risk (β) of McDonald’s Corp. common stock βMCD 0.72
 
Expected rate of return on McDonald’s Corp. common stock3 E(RMCD) 11.27%

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(RMCD) = RF + βMCD [E(RM) – RF]
= 4.55% + 0.72 [13.83%4.55%]
= 11.27%