McDonald’s Corp. (NYSE:MCD)

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 McDonald’s Corp. common stock.

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

Rates of Return

McDonald’s Corp., monthly rates of return

		McDonald’s Corp. (MCD)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_MCD,t¹	Dividend_MCD,t¹	R_MCD,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2020	$213.97			3,225.52
1.	Feb 29, 2020	$194.17	$1.25	-8.67%	2,954.22	-8.41%
2.	Mar 31, 2020	$165.35		-14.84%	2,584.59	-12.51%
3.	Apr 30, 2020	$187.56		13.43%	2,912.43	12.68%
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58.	Nov 30, 2024	$296.01		1.34%	6,032.38	5.73%
59.	Dec 31, 2024	$289.89	$1.77	-1.47%	5,881.63	-2.50%
Average (R):				0.86%		1.16%
Standard deviation:				5.60%		5.28%

		McDonald’s Corp. (MCD)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_MCD,t¹	Dividend_MCD,t¹	R_MCD,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Jan 31, 2020	$213.97			3,225.52
1.	Feb 29, 2020	$194.17	$1.25	-8.67%	2,954.22	-8.41%
2.	Mar 31, 2020	$165.35		-14.84%	2,584.59	-12.51%
3.	Apr 30, 2020	$187.56		13.43%	2,912.43	12.68%
4.	May 31, 2020	$186.32	$1.25	0.01%	3,044.31	4.53%
5.	Jun 30, 2020	$184.47		-0.99%	3,100.29	1.84%
6.	Jul 31, 2020	$194.28		5.32%	3,271.12	5.51%
7.	Aug 31, 2020	$213.52	$1.25	10.55%	3,500.31	7.01%
8.	Sep 30, 2020	$219.49		2.80%	3,363.00	-3.92%
9.	Oct 31, 2020	$213.00		-2.96%	3,269.96	-2.77%
10.	Nov 30, 2020	$217.44	$1.29	2.69%	3,621.63	10.75%
11.	Dec 31, 2020	$214.58		-1.32%	3,756.07	3.71%
12.	Jan 31, 2021	$207.84		-3.14%	3,714.24	-1.11%
13.	Feb 28, 2021	$206.14	$1.29	-0.20%	3,811.15	2.61%
14.	Mar 31, 2021	$224.14		8.73%	3,972.89	4.24%
15.	Apr 30, 2021	$236.08		5.33%	4,181.17	5.24%
16.	May 31, 2021	$233.89	$1.29	-0.38%	4,204.11	0.55%
17.	Jun 30, 2021	$230.99		-1.24%	4,297.50	2.22%
18.	Jul 31, 2021	$242.71		5.07%	4,395.26	2.27%
19.	Aug 31, 2021	$237.46	$1.29	-1.63%	4,522.68	2.90%
20.	Sep 30, 2021	$241.11		1.54%	4,307.54	-4.76%
21.	Oct 31, 2021	$245.55		1.84%	4,605.38	6.91%
22.	Nov 30, 2021	$244.60	$1.38	0.18%	4,567.00	-0.83%
23.	Dec 31, 2021	$268.07		9.60%	4,766.18	4.36%
24.	Jan 31, 2022	$259.45		-3.22%	4,515.55	-5.26%
25.	Feb 28, 2022	$244.77	$1.38	-5.13%	4,373.94	-3.14%
26.	Mar 31, 2022	$247.28		1.03%	4,530.41	3.58%
27.	Apr 30, 2022	$249.16		0.76%	4,131.93	-8.80%
28.	May 31, 2022	$252.21		1.22%	4,132.15	0.01%
29.	Jun 30, 2022	$246.88	$1.38	-1.57%	3,785.38	-8.39%
30.	Jul 31, 2022	$263.37		6.68%	4,130.29	9.11%
31.	Aug 31, 2022	$252.28	$1.38	-3.69%	3,955.00	-4.24%
32.	Sep 30, 2022	$230.74		-8.54%	3,585.62	-9.34%
33.	Oct 31, 2022	$272.66		18.17%	3,871.98	7.99%
34.	Nov 30, 2022	$272.79	$1.52	0.61%	4,080.11	5.38%
35.	Dec 31, 2022	$263.53		-3.39%	3,839.50	-5.90%
36.	Jan 31, 2023	$267.40		1.47%	4,076.60	6.18%
37.	Feb 28, 2023	$263.91	$1.52	-0.74%	3,970.15	-2.61%
38.	Mar 31, 2023	$279.61		5.95%	4,109.31	3.51%
39.	Apr 30, 2023	$295.75		5.77%	4,169.48	1.46%
40.	May 31, 2023	$285.11		-3.60%	4,179.83	0.25%
41.	Jun 30, 2023	$298.41	$1.52	5.20%	4,376.86	4.71%
42.	Jul 31, 2023	$293.20		-1.75%	4,588.96	4.85%
43.	Aug 31, 2023	$281.15	$1.52	-3.59%	4,507.66	-1.77%
44.	Sep 30, 2023	$263.44		-6.30%	4,288.05	-4.87%
45.	Oct 31, 2023	$262.17		-0.48%	4,193.80	-2.20%
46.	Nov 30, 2023	$281.84	$1.67	8.14%	4,567.80	8.92%
47.	Dec 31, 2023	$296.51		5.21%	4,769.83	4.42%
48.	Jan 31, 2024	$292.72		-1.28%	4,845.65	1.59%
49.	Feb 29, 2024	$292.28	$1.67	0.42%	5,096.27	5.17%
50.	Mar 31, 2024	$281.95		-3.53%	5,254.35	3.10%
51.	Apr 30, 2024	$273.04		-3.16%	5,035.69	-4.16%
52.	May 31, 2024	$258.89		-5.18%	5,277.51	4.80%
53.	Jun 30, 2024	$254.84	$1.67	-0.92%	5,460.48	3.47%
54.	Jul 31, 2024	$265.40		4.14%	5,522.30	1.13%
55.	Aug 31, 2024	$288.66		8.76%	5,648.40	2.28%
56.	Sep 30, 2024	$304.51	$1.67	6.07%	5,762.48	2.02%
57.	Oct 31, 2024	$292.11		-4.07%	5,705.45	-0.99%
58.	Nov 30, 2024	$296.01		1.34%	6,032.38	5.73%
59.	Dec 31, 2024	$289.89	$1.77	-1.47%	5,881.63	-2.50%
Average (R):				0.86%		1.16%
Standard deviation:				5.60%		5.28%

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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

t	Date	R_MCD,t	R_{S&P 500,t}	(R_MCD,t–R_MCD)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_MCD,t–R_MCD)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 29, 2020	-8.67%	-8.41%	90.90	91.63	91.27
2.	Mar 31, 2020	-14.84%	-12.51%	246.73	186.96	214.77
3.	Apr 30, 2020	13.43%	12.68%	157.93	132.78	144.81
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58.	Nov 30, 2024	1.34%	5.73%	0.22	20.87	2.15
59.	Dec 31, 2024	-1.47%	-2.50%	5.45	13.40	8.54
Total (Σ):				1,819.41	1,618.62	1,194.81

t	Date	R_MCD,t	R_{S&P 500,t}	(R_MCD,t–R_MCD)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_MCD,t–R_MCD)×(R_{S&P 500,t}–R_{S&P 500})
1.	Feb 29, 2020	-8.67%	-8.41%	90.90	91.63	91.27
2.	Mar 31, 2020	-14.84%	-12.51%	246.73	186.96	214.77
3.	Apr 30, 2020	13.43%	12.68%	157.93	132.78	144.81
4.	May 31, 2020	0.01%	4.53%	0.74	11.34	-2.89
5.	Jun 30, 2020	-0.99%	1.84%	3.45	0.46	-1.26
6.	Jul 31, 2020	5.32%	5.51%	19.83	18.91	19.37
7.	Aug 31, 2020	10.55%	7.01%	93.73	34.17	56.59
8.	Sep 30, 2020	2.80%	-3.92%	3.73	25.85	-9.82
9.	Oct 31, 2020	-2.96%	-2.77%	14.61	15.43	15.01
10.	Nov 30, 2020	2.69%	10.75%	3.33	92.03	17.51
11.	Dec 31, 2020	-1.32%	3.71%	4.75	6.51	-5.56
12.	Jan 31, 2021	-3.14%	-1.11%	16.05	5.18	9.11
13.	Feb 28, 2021	-0.20%	2.61%	1.13	2.10	-1.54
14.	Mar 31, 2021	8.73%	4.24%	61.89	9.50	24.25
15.	Apr 30, 2021	5.33%	5.24%	19.91	16.66	18.21
16.	May 31, 2021	-0.38%	0.55%	1.55	0.38	0.76
17.	Jun 30, 2021	-1.24%	2.22%	4.43	1.12	-2.23
18.	Jul 31, 2021	5.07%	2.27%	17.71	1.24	4.69
19.	Aug 31, 2021	-1.63%	2.90%	6.23	3.02	-4.34
20.	Sep 30, 2021	1.54%	-4.76%	0.45	35.02	-3.98
21.	Oct 31, 2021	1.84%	6.91%	0.95	33.10	5.62
22.	Nov 30, 2021	0.18%	-0.83%	0.48	3.98	1.38
23.	Dec 31, 2021	9.60%	4.36%	76.22	10.24	27.94
24.	Jan 31, 2022	-3.22%	-5.26%	16.65	41.21	26.20
25.	Feb 28, 2022	-5.13%	-3.14%	35.89	18.47	25.75
26.	Mar 31, 2022	1.03%	3.58%	0.03	5.84	0.39
27.	Apr 30, 2022	0.76%	-8.80%	0.01	99.14	1.04
28.	May 31, 2022	1.22%	0.01%	0.13	1.34	-0.42
29.	Jun 30, 2022	-1.57%	-8.39%	5.91	91.26	23.23
30.	Jul 31, 2022	6.68%	9.11%	33.81	63.21	46.23
31.	Aug 31, 2022	-3.69%	-4.24%	20.72	29.22	24.60
32.	Sep 30, 2022	-8.54%	-9.34%	88.42	110.27	98.74
33.	Oct 31, 2022	18.17%	7.99%	299.38	46.58	118.09
34.	Nov 30, 2022	0.61%	5.38%	0.07	17.76	-1.09
35.	Dec 31, 2022	-3.39%	-5.90%	18.14	49.82	30.07
36.	Jan 31, 2023	1.47%	6.18%	0.36	25.14	3.03
37.	Feb 28, 2023	-0.74%	-2.61%	2.57	14.23	6.04
38.	Mar 31, 2023	5.95%	3.51%	25.85	5.49	11.92
39.	Apr 30, 2023	5.77%	1.46%	24.08	0.09	1.49
40.	May 31, 2023	-3.60%	0.25%	19.91	0.83	4.07
41.	Jun 30, 2023	5.20%	4.71%	18.78	12.62	15.39
42.	Jul 31, 2023	-1.75%	4.85%	6.82	13.58	-9.62
43.	Aug 31, 2023	-3.59%	-1.77%	19.86	8.60	13.07
44.	Sep 30, 2023	-6.30%	-4.87%	51.32	36.40	43.22
45.	Oct 31, 2023	-0.48%	-2.20%	1.81	11.28	4.53
46.	Nov 30, 2023	8.14%	8.92%	52.92	60.17	56.43
47.	Dec 31, 2023	5.21%	4.42%	18.84	10.64	14.16
48.	Jan 31, 2024	-1.28%	1.59%	4.59	0.18	-0.92
49.	Feb 29, 2024	0.42%	5.17%	0.20	16.09	-1.78
50.	Mar 31, 2024	-3.53%	3.10%	19.35	3.77	-8.54
51.	Apr 30, 2024	-3.16%	-4.16%	16.20	28.33	21.42
52.	May 31, 2024	-5.18%	4.80%	36.57	13.26	-22.02
53.	Jun 30, 2024	-0.92%	3.47%	3.18	5.32	-4.11
54.	Jul 31, 2024	4.14%	1.13%	10.75	0.00	-0.10
55.	Aug 31, 2024	8.76%	2.28%	62.40	1.26	8.86
56.	Sep 30, 2024	6.07%	2.02%	27.09	0.74	4.47
57.	Oct 31, 2024	-4.07%	-0.99%	24.37	4.63	10.62
58.	Nov 30, 2024	1.34%	5.73%	0.22	20.87	2.15
59.	Dec 31, 2024	-1.47%	-2.50%	5.45	13.40	8.54
Total (Σ):				1,819.41	1,618.62	1,194.81

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Variance_MCD = Σ(R_MCD,t–R_MCD)² ÷ (59 – 1)
= 1,819.41 ÷ (59 – 1)
= 31.37

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (59 – 1)
= 1,618.62 ÷ (59 – 1)
= 27.91

Covariance_{MCD, S&P 500} = Σ(R_MCD,t–R_MCD)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (59 – 1)
= 1,194.81 ÷ (59 – 1)
= 20.60

Systematic Risk (β) Estimation

Variance_MCD	31.37
Variance_{S&P 500}	27.91
Covariance_{MCD, S&P 500}	20.60
Correlation coefficient_{MCD, S&P 500}¹	0.70
β_MCD²	0.74
α_MCD³	0.01%

Calculations

¹ Correlation coefficient_{MCD, S&P 500}
= Covariance_{MCD, S&P 500} ÷ (Standard deviation_MCD × Standard deviation_{S&P 500})
= 20.60 ÷ (5.60% × 5.28%)
= 0.70

² β_MCD
= Covariance_{MCD, S&P 500} ÷ Variance_{S&P 500}
= 20.60 ÷ 27.91
= 0.74

³ α_MCD
= Average_MCD – β_MCD × Average_{S&P 500}
= 0.86% – 0.74 × 1.16%
= 0.01%

Expected Rate of Return

Assumptions
Rate of return on LT Treasury Composite¹	R_F	4.85%
Expected rate of return on market portfolio²	E(R_M)	14.88%
Systematic risk (β) of McDonald’s Corp. common stock	β_MCD	0.74

Expected rate of return on McDonald’s Corp. common stock³	E(R_MCD)	12.25%

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_MCD) = R_F + β_MCD [E(R_M) – R_F]
= 4.85% + 0.74 [14.88% – 4.85%]
= 12.25%