Stock Analysis on Net
Stock Analysis on Net
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Philip Morris International Inc. (NYSE:PM)

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 Philip Morris International Inc.’s common stock.


Rates of Return

Philip Morris International Inc., monthly rates of return

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Philip Morris International Inc. (PM) Standard & Poor’s 500 (S&P 500)
t Date PricePM,t1 DividendPM,t1 RPM,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2015 80.24 1,994.99
1. Feb 28, 2015 82.96 3.39% 2,104.50 5.49%
2. Mar 31, 2015 75.33 1.00 -7.99% 2,067.89 -1.74%
3. Apr 30, 2015 83.47 10.81% 2,085.51 0.85%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2019 82.93 1.83% 3,140.98 3.40%
59. Dec 31, 2019 85.09 1.17 4.02% 3,230.78 2.86%
Average: 0.77% 0.88%
Standard deviation: 7.09% 3.45%
Philip Morris International Inc. (PM) Standard & Poor’s 500 (S&P 500)
t Date PricePM,t1 DividendPM,t1 RPM,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2015 80.24 1,994.99
1. Feb 28, 2015 82.96 3.39% 2,104.50 5.49%
2. Mar 31, 2015 75.33 1.00 -7.99% 2,067.89 -1.74%
3. Apr 30, 2015 83.47 10.81% 2,085.51 0.85%
4. May 31, 2015 83.07 -0.48% 2,107.39 1.05%
5. Jun 30, 2015 80.17 1.00 -2.29% 2,063.11 -2.10%
6. Jul 31, 2015 85.53 6.69% 2,103.84 1.97%
7. Aug 31, 2015 79.80 -6.70% 1,972.18 -6.26%
8. Sep 30, 2015 79.33 1.02 0.69% 1,920.03 -2.64%
9. Oct 31, 2015 88.40 11.43% 2,079.36 8.30%
10. Nov 30, 2015 87.39 -1.14% 2,080.41 0.05%
11. Dec 31, 2015 87.91 1.02 1.76% 2,043.94 -1.75%
12. Jan 31, 2016 90.01 2.39% 1,940.24 -5.07%
13. Feb 29, 2016 91.03 1.13% 1,932.23 -0.41%
14. Mar 31, 2016 98.11 1.02 8.90% 2,059.74 6.60%
15. Apr 30, 2016 98.12 0.01% 2,065.30 0.27%
16. May 31, 2016 98.68 0.57% 2,096.95 1.53%
17. Jun 30, 2016 101.72 1.02 4.11% 2,098.86 0.09%
18. Jul 31, 2016 100.26 -1.44% 2,173.60 3.56%
19. Aug 31, 2016 99.93 -0.33% 2,170.95 -0.12%
20. Sep 30, 2016 97.22 1.04 -1.67% 2,168.27 -0.12%
21. Oct 31, 2016 96.44 -0.80% 2,126.15 -1.94%
22. Nov 30, 2016 88.28 -8.46% 2,198.81 3.42%
23. Dec 31, 2016 91.49 1.04 4.81% 2,238.83 1.82%
24. Jan 31, 2017 96.13 5.07% 2,278.87 1.79%
25. Feb 28, 2017 109.35 13.75% 2,363.64 3.72%
26. Mar 31, 2017 112.90 1.04 4.20% 2,362.72 -0.04%
27. Apr 30, 2017 110.84 -1.82% 2,384.20 0.91%
28. May 31, 2017 119.80 8.08% 2,411.80 1.16%
29. Jun 30, 2017 117.45 1.04 -1.09% 2,423.41 0.48%
30. Jul 31, 2017 116.71 -0.63% 2,470.30 1.93%
31. Aug 31, 2017 116.93 0.19% 2,471.65 0.05%
32. Sep 30, 2017 111.01 1.07 -4.15% 2,519.36 1.93%
33. Oct 31, 2017 104.64 -5.74% 2,575.26 2.22%
34. Nov 30, 2017 102.75 -1.81% 2,647.58 2.81%
35. Dec 31, 2017 105.65 1.07 3.86% 2,673.61 0.98%
36. Jan 31, 2018 107.23 1.50% 2,823.81 5.62%
37. Feb 28, 2018 103.55 -3.43% 2,713.83 -3.89%
38. Mar 31, 2018 99.40 1.07 -2.97% 2,640.87 -2.69%
39. Apr 30, 2018 82.00 -17.51% 2,648.05 0.27%
40. May 31, 2018 79.54 -3.00% 2,705.27 2.16%
41. Jun 30, 2018 80.74 1.14 2.94% 2,718.37 0.48%
42. Jul 31, 2018 86.30 6.89% 2,816.29 3.60%
43. Aug 31, 2018 77.89 -9.75% 2,901.52 3.03%
44. Sep 30, 2018 81.54 1.14 6.15% 2,913.98 0.43%
45. Oct 31, 2018 88.07 8.01% 2,711.74 -6.94%
46. Nov 30, 2018 86.53 -1.75% 2,760.17 1.79%
47. Dec 31, 2018 66.76 1.14 -21.53% 2,506.85 -9.18%
48. Jan 31, 2019 76.72 14.92% 2,704.10 7.87%
49. Feb 28, 2019 86.94 13.32% 2,784.49 2.97%
50. Mar 31, 2019 88.39 1.14 2.98% 2,834.40 1.79%
51. Apr 30, 2019 86.56 -2.07% 2,945.83 3.93%
52. May 31, 2019 77.13 -10.89% 2,752.06 -6.58%
53. Jun 30, 2019 78.53 1.14 3.29% 2,941.76 6.89%
54. Jul 31, 2019 83.61 6.47% 2,980.38 1.31%
55. Aug 31, 2019 72.09 -13.78% 2,926.46 -1.81%
56. Sep 30, 2019 75.93 1.17 6.95% 2,976.74 1.72%
57. Oct 31, 2019 81.44 7.26% 3,037.56 2.04%
58. Nov 30, 2019 82.93 1.83% 3,140.98 3.40%
59. Dec 31, 2019 85.09 1.17 4.02% 3,230.78 2.86%
Average: 0.77% 0.88%
Standard deviation: 7.09% 3.45%

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 PM 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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VariancePM 50.27
VarianceS&P 500 11.88
CovariancePM, S&P 500 12.11
Correlation coefficientPM, S&P 5001 0.50
βPM2 1.02
αPM3 -0.13

Calculations

1 Correlation coefficientPM, S&P 500
= CovariancePM, S&P 500 ÷ (Standard deviationPM × Standard deviationS&P 500)
= 12.11 ÷ (7.09 × 3.45)

2 βPM
= CovariancePM, S&P 500 ÷ VarianceS&P 500
= 12.11 ÷ 11.88

3 αPM
= AveragePM – βPM × AverageS&P 500
= 0.771.02 × 0.88


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 1.38%
Expected rate of return on market portfolio2 E(RM) 12.45%
Systematic risk (β) of Philip Morris International Inc.’s common stock βPM 1.02
 
Expected rate of return on Philip Morris International Inc.’s common stock3 E(RPM) 12.67%

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(RPM) = RF + βPM [E(RM) – RF]
= 1.38% + 1.02 [12.45%1.38%]
= 12.67%