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Microsoft Excel LibreOffice Calc

Medtronic PLC (NYSE:MDT)

Capital Asset Pricing Model (CAPM)

Intermediate level

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

Rates of Return

Medtronic PLC, monthly rates of return

Microsoft Excel LibreOffice Calc
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, 2013
1. Jun 30, 2013
2. Jul 31, 2013
3. Aug 31, 2013
. . . . . . .
. . . . . . .
. . . . . . .
70. Mar 31, 2019
71. Apr 30, 2019
Average:
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, 2013
1. Jun 30, 2013
2. Jul 31, 2013
3. Aug 31, 2013
4. Sep 30, 2013
5. Oct 31, 2013
6. Nov 30, 2013
7. Dec 31, 2013
8. Jan 31, 2014
9. Feb 28, 2014
10. Mar 31, 2014
11. Apr 30, 2014
12. May 31, 2014
13. Jun 30, 2014
14. Jul 31, 2014
15. Aug 31, 2014
16. Sep 30, 2014
17. Oct 31, 2014
18. Nov 30, 2014
19. Dec 31, 2014
20. Jan 31, 2015
21. Feb 28, 2015
22. Mar 31, 2015
23. Apr 30, 2015
24. May 31, 2015
25. Jun 30, 2015
26. Jul 31, 2015
27. Aug 31, 2015
28. Sep 30, 2015
29. Oct 31, 2015
30. Nov 30, 2015
31. Dec 31, 2015
32. Jan 31, 2016
33. Feb 29, 2016
34. Mar 31, 2016
35. Apr 30, 2016
36. May 31, 2016
37. Jun 30, 2016
38. Jul 31, 2016
39. Aug 31, 2016
40. Sep 30, 2016
41. Oct 31, 2016
42. Nov 30, 2016
43. Dec 31, 2016
44. Jan 31, 2017
45. Feb 28, 2017
46. Mar 31, 2017
47. Apr 30, 2017
48. May 31, 2017
49. Jun 30, 2017
50. Jul 31, 2017
51. Aug 31, 2017
52. Sep 30, 2017
53. Oct 31, 2017
54. Nov 30, 2017
55. Dec 31, 2017
56. Jan 31, 2018
57. Feb 28, 2018
58. Mar 31, 2018
59. Apr 30, 2018
60. May 31, 2018
61. Jun 30, 2018
62. Jul 31, 2018
63. Aug 31, 2018
64. Sep 30, 2018
65. Oct 31, 2018
66. Nov 30, 2018
67. Dec 31, 2018
68. Jan 31, 2019
69. Feb 28, 2019
70. Mar 31, 2019
71. Apr 30, 2019
Average:
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

Systematic Risk (β) Estimation

Microsoft Excel LibreOffice Calc
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

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF
Expected rate of return on market portfolio2 E(RM)
Systematic risk (β) of Medtronic PLC’s common stock βMDT
 
Expected rate of return on Medtronic PLC’s 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).

2 See details »

3 E(RMDT) = RF + βMDT [E(RM) – RF]
= + [ – ]
=