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 Medtronic PLC common stock.
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Medtronic PLC pages available for free this week:
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Reportable Segments
- Price to FCFE (P/FCFE)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Analysis of Revenues
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Rates of Return
Medtronic PLC, monthly rates of return
| Medtronic PLC (MDT) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceMDT,t1 | DividendMDT,t1 | RMDT,t2 | PriceS&P 500,t | RS&P 500,t3 |
| May 31, 2020 | ||||||
| 1. | Jun 30, 2020 | |||||
| 2. | Jul 31, 2020 | |||||
| 3. | Aug 31, 2020 | |||||
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Mar 31, 2026 | |||||
| 71. | Apr 30, 2026 | |||||
| Average (R): | ||||||
| Standard deviation: | ||||||
| Medtronic PLC (MDT) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceMDT,t1 | DividendMDT,t1 | RMDT,t2 | PriceS&P 500,t | RS&P 500,t3 |
| May 31, 2020 | ||||||
| 1. | Jun 30, 2020 | |||||
| 2. | Jul 31, 2020 | |||||
| 3. | Aug 31, 2020 | |||||
| 4. | Sep 30, 2020 | |||||
| 5. | Oct 31, 2020 | |||||
| 6. | Nov 30, 2020 | |||||
| 7. | Dec 31, 2020 | |||||
| 8. | Jan 31, 2021 | |||||
| 9. | Feb 28, 2021 | |||||
| 10. | Mar 31, 2021 | |||||
| 11. | Apr 30, 2021 | |||||
| 12. | May 31, 2021 | |||||
| 13. | Jun 30, 2021 | |||||
| 14. | Jul 31, 2021 | |||||
| 15. | Aug 31, 2021 | |||||
| 16. | Sep 30, 2021 | |||||
| 17. | Oct 31, 2021 | |||||
| 18. | Nov 30, 2021 | |||||
| 19. | Dec 31, 2021 | |||||
| 20. | Jan 31, 2022 | |||||
| 21. | Feb 28, 2022 | |||||
| 22. | Mar 31, 2022 | |||||
| 23. | Apr 30, 2022 | |||||
| 24. | May 31, 2022 | |||||
| 25. | Jun 30, 2022 | |||||
| 26. | Jul 31, 2022 | |||||
| 27. | Aug 31, 2022 | |||||
| 28. | Sep 30, 2022 | |||||
| 29. | Oct 31, 2022 | |||||
| 30. | Nov 30, 2022 | |||||
| 31. | Dec 31, 2022 | |||||
| 32. | Jan 31, 2023 | |||||
| 33. | Feb 28, 2023 | |||||
| 34. | Mar 31, 2023 | |||||
| 35. | Apr 30, 2023 | |||||
| 36. | May 31, 2023 | |||||
| 37. | Jun 30, 2023 | |||||
| 38. | Jul 31, 2023 | |||||
| 39. | Aug 31, 2023 | |||||
| 40. | Sep 30, 2023 | |||||
| 41. | Oct 31, 2023 | |||||
| 42. | Nov 30, 2023 | |||||
| 43. | Dec 31, 2023 | |||||
| 44. | Jan 31, 2024 | |||||
| 45. | Feb 29, 2024 | |||||
| 46. | Mar 31, 2024 | |||||
| 47. | Apr 30, 2024 | |||||
| 48. | May 31, 2024 | |||||
| 49. | Jun 30, 2024 | |||||
| 50. | Jul 31, 2024 | |||||
| 51. | Aug 31, 2024 | |||||
| 52. | Sep 30, 2024 | |||||
| 53. | Oct 31, 2024 | |||||
| 54. | Nov 30, 2024 | |||||
| 55. | Dec 31, 2024 | |||||
| 56. | Jan 31, 2025 | |||||
| 57. | Feb 28, 2025 | |||||
| 58. | Mar 31, 2025 | |||||
| 59. | Apr 30, 2025 | |||||
| 60. | May 31, 2025 | |||||
| 61. | Jun 30, 2025 | |||||
| 62. | Jul 31, 2025 | |||||
| 63. | Aug 31, 2025 | |||||
| 64. | Sep 30, 2025 | |||||
| 65. | Oct 31, 2025 | |||||
| 66. | Nov 30, 2025 | |||||
| 67. | Dec 31, 2025 | |||||
| 68. | Jan 31, 2026 | |||||
| 69. | Feb 28, 2026 | |||||
| 70. | Mar 31, 2026 | |||||
| 71. | Apr 30, 2026 | |||||
| Average (R): | ||||||
| Standard deviation: | ||||||
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 MDT during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Medtronic PLC, calculation of variance and covariance of returns
| t | Date | RMDT,t | RS&P 500,t | (RMDT,t–RMDT)2 | (RS&P 500,t–RS&P 500)2 | (RMDT,t–RMDT)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Jun 30, 2020 | |||||
| 2. | Jul 31, 2020 | |||||
| 3. | Aug 31, 2020 | |||||
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Mar 31, 2026 | |||||
| 71. | Apr 30, 2026 | |||||
| Total (Σ): | ||||||
| t | Date | RMDT,t | RS&P 500,t | (RMDT,t–RMDT)2 | (RS&P 500,t–RS&P 500)2 | (RMDT,t–RMDT)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Jun 30, 2020 | |||||
| 2. | Jul 31, 2020 | |||||
| 3. | Aug 31, 2020 | |||||
| 4. | Sep 30, 2020 | |||||
| 5. | Oct 31, 2020 | |||||
| 6. | Nov 30, 2020 | |||||
| 7. | Dec 31, 2020 | |||||
| 8. | Jan 31, 2021 | |||||
| 9. | Feb 28, 2021 | |||||
| 10. | Mar 31, 2021 | |||||
| 11. | Apr 30, 2021 | |||||
| 12. | May 31, 2021 | |||||
| 13. | Jun 30, 2021 | |||||
| 14. | Jul 31, 2021 | |||||
| 15. | Aug 31, 2021 | |||||
| 16. | Sep 30, 2021 | |||||
| 17. | Oct 31, 2021 | |||||
| 18. | Nov 30, 2021 | |||||
| 19. | Dec 31, 2021 | |||||
| 20. | Jan 31, 2022 | |||||
| 21. | Feb 28, 2022 | |||||
| 22. | Mar 31, 2022 | |||||
| 23. | Apr 30, 2022 | |||||
| 24. | May 31, 2022 | |||||
| 25. | Jun 30, 2022 | |||||
| 26. | Jul 31, 2022 | |||||
| 27. | Aug 31, 2022 | |||||
| 28. | Sep 30, 2022 | |||||
| 29. | Oct 31, 2022 | |||||
| 30. | Nov 30, 2022 | |||||
| 31. | Dec 31, 2022 | |||||
| 32. | Jan 31, 2023 | |||||
| 33. | Feb 28, 2023 | |||||
| 34. | Mar 31, 2023 | |||||
| 35. | Apr 30, 2023 | |||||
| 36. | May 31, 2023 | |||||
| 37. | Jun 30, 2023 | |||||
| 38. | Jul 31, 2023 | |||||
| 39. | Aug 31, 2023 | |||||
| 40. | Sep 30, 2023 | |||||
| 41. | Oct 31, 2023 | |||||
| 42. | Nov 30, 2023 | |||||
| 43. | Dec 31, 2023 | |||||
| 44. | Jan 31, 2024 | |||||
| 45. | Feb 29, 2024 | |||||
| 46. | Mar 31, 2024 | |||||
| 47. | Apr 30, 2024 | |||||
| 48. | May 31, 2024 | |||||
| 49. | Jun 30, 2024 | |||||
| 50. | Jul 31, 2024 | |||||
| 51. | Aug 31, 2024 | |||||
| 52. | Sep 30, 2024 | |||||
| 53. | Oct 31, 2024 | |||||
| 54. | Nov 30, 2024 | |||||
| 55. | Dec 31, 2024 | |||||
| 56. | Jan 31, 2025 | |||||
| 57. | Feb 28, 2025 | |||||
| 58. | Mar 31, 2025 | |||||
| 59. | Apr 30, 2025 | |||||
| 60. | May 31, 2025 | |||||
| 61. | Jun 30, 2025 | |||||
| 62. | Jul 31, 2025 | |||||
| 63. | Aug 31, 2025 | |||||
| 64. | Sep 30, 2025 | |||||
| 65. | Oct 31, 2025 | |||||
| 66. | Nov 30, 2025 | |||||
| 67. | Dec 31, 2025 | |||||
| 68. | Jan 31, 2026 | |||||
| 69. | Feb 28, 2026 | |||||
| 70. | Mar 31, 2026 | |||||
| 71. | Apr 30, 2026 | |||||
| Total (Σ): | ||||||
Show all
VarianceMDT = Σ(RMDT,t–RMDT)2 ÷ (71 – 1)
= ÷ (71 – 1)
=
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)
= ÷ (71 – 1)
=
CovarianceMDT, S&P 500 = Σ(RMDT,t–RMDT)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)
= ÷ (71 – 1)
=
Systematic Risk (β) Estimation
| VarianceMDT | |
| VarianceS&P 500 | |
| CovarianceMDT, S&P 500 | |
| Correlation coefficientMDT, S&P 5001 | |
| βMDT2 | |
| αMDT3 |
Calculations
1 Correlation coefficientMDT, S&P 500
= CovarianceMDT, S&P 500 ÷ (Standard deviationMDT × Standard deviationS&P 500)
= ÷ ( × )
=
2 βMDT
= CovarianceMDT, S&P 500 ÷ VarianceS&P 500
= ÷
=
3 αMDT
= AverageMDT – βMDT × AverageS&P 500
= – ×
=
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | |
| Expected rate of return on market portfolio2 | E(RM) | |
| Systematic risk (β) of Medtronic PLC common stock | βMDT | |
| Expected rate of return on Medtronic PLC common stock3 | E(RMDT) | |
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(RMDT) = RF + βMDT [E(RM) – RF]
= + [ – ]
=