Microsoft Excel LibreOffice Calc

Phillips 66 (PSX)


Capital Asset Pricing Model (CAPM)

Difficulty: Intermediate

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Phillips 66’s common stock.


Rates of Return

Phillips 66, monthly rates of return

Microsoft Excel LibreOffice Calc
Phillips 66 (PSX) Standard & Poor’s 500 (S&P 500)
t Date PricePSX,t1 DividendPSX,t1 RPSX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 73.09 1,782.59
1. Feb 28, 2014 74.86 0.39 2.96% 1,859.45 4.31%
2. Mar 31, 2014 77.06 2.94% 1,872.34 0.69%
3. Apr 30, 2014 83.22 7.99% 1,883.95 0.62%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2018 93.52 0.80 -8.27% 2,760.17 1.79%
59. Dec 31, 2018 86.15 -7.88% 2,506.85 -9.18%
Average: 0.69% 0.63%
Standard Deviation: 5.98% 3.13%
Phillips 66 (PSX) Standard & Poor’s 500 (S&P 500)
t Date PricePSX,t1 DividendPSX,t1 RPSX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2014 73.09 1,782.59
1. Feb 28, 2014 74.86 0.39 2.96% 1,859.45 4.31%
2. Mar 31, 2014 77.06 2.94% 1,872.34 0.69%
3. Apr 30, 2014 83.22 7.99% 1,883.95 0.62%
4. May 31, 2014 84.79 0.50 2.49% 1,923.57 2.10%
5. Jun 30, 2014 80.43 -5.14% 1,960.23 1.91%
6. Jul 31, 2014 81.11 0.85% 1,930.67 -1.51%
7. Aug 31, 2014 87.02 0.50 7.90% 2,003.37 3.77%
8. Sep 30, 2014 81.31 -6.56% 1,972.29 -1.55%
9. Oct 31, 2014 78.50 -3.46% 2,018.05 2.32%
10. Nov 30, 2014 73.02 0.50 -6.34% 2,067.56 2.45%
11. Dec 31, 2014 71.70 -1.81% 2,058.90 -0.42%
12. Jan 31, 2015 70.32 -1.92% 1,994.99 -3.10%
13. Feb 28, 2015 78.46 0.50 12.29% 2,104.50 5.49%
14. Mar 31, 2015 78.60 0.18% 2,067.89 -1.74%
15. Apr 30, 2015 79.31 0.90% 2,085.51 0.85%
16. May 31, 2015 79.12 0.56 0.47% 2,107.39 1.05%
17. Jun 30, 2015 80.56 1.82% 2,063.11 -2.10%
18. Jul 31, 2015 79.50 -1.32% 2,103.84 1.97%
19. Aug 31, 2015 79.07 0.56 0.16% 1,972.18 -6.26%
20. Sep 30, 2015 76.84 -2.82% 1,920.03 -2.64%
21. Oct 31, 2015 89.05 15.89% 2,079.36 8.30%
22. Nov 30, 2015 91.53 0.56 3.41% 2,080.41 0.05%
23. Dec 31, 2015 81.80 -10.63% 2,043.94 -1.75%
24. Jan 31, 2016 80.15 -2.02% 1,940.24 -5.07%
25. Feb 29, 2016 79.39 0.56 -0.25% 1,932.23 -0.41%
26. Mar 31, 2016 86.59 9.07% 2,059.74 6.60%
27. Apr 30, 2016 82.11 -5.17% 2,065.30 0.27%
28. May 31, 2016 80.36 0.63 -1.36% 2,096.95 1.53%
29. Jun 30, 2016 79.34 -1.27% 2,098.86 0.09%
30. Jul 31, 2016 76.06 -4.13% 2,173.60 3.56%
31. Aug 31, 2016 78.45 0.63 3.97% 2,170.95 -0.12%
32. Sep 30, 2016 80.55 2.68% 2,168.27 -0.12%
33. Oct 31, 2016 81.15 0.74% 2,126.15 -1.94%
34. Nov 30, 2016 83.08 0.63 3.15% 2,198.81 3.42%
35. Dec 31, 2016 86.41 4.01% 2,238.83 1.82%
36. Jan 31, 2017 81.62 -5.54% 2,278.87 1.79%
37. Feb 28, 2017 78.19 0.63 -3.43% 2,363.64 3.72%
38. Mar 31, 2017 79.22 1.32% 2,362.72 -0.04%
39. Apr 30, 2017 79.56 0.43% 2,384.20 0.91%
40. May 31, 2017 76.11 0.70 -3.46% 2,411.80 1.16%
41. Jun 30, 2017 82.69 8.65% 2,423.41 0.48%
42. Jul 31, 2017 83.75 1.28% 2,470.30 1.93%
43. Aug 31, 2017 83.81 0.70 0.91% 2,471.65 0.05%
44. Sep 30, 2017 91.61 9.31% 2,519.36 1.93%
45. Oct 31, 2017 91.08 -0.58% 2,575.26 2.22%
46. Nov 30, 2017 97.56 0.70 7.88% 2,647.58 2.81%
47. Dec 31, 2017 101.15 3.68% 2,673.61 0.98%
48. Jan 31, 2018 102.40 1.24% 2,823.81 5.62%
49. Feb 28, 2018 90.37 0.70 -11.06% 2,713.83 -3.89%
50. Mar 31, 2018 95.92 6.14% 2,640.87 -2.69%
51. Apr 30, 2018 111.31 16.04% 2,648.05 0.27%
52. May 31, 2018 116.49 0.80 5.37% 2,705.27 2.16%
53. Jun 30, 2018 112.31 -3.59% 2,718.37 0.48%
54. Jul 31, 2018 123.34 9.82% 2,816.29 3.60%
55. Aug 31, 2018 118.51 0.80 -3.27% 2,901.52 3.03%
56. Sep 30, 2018 112.72 -4.89% 2,913.98 0.43%
57. Oct 31, 2018 102.82 -8.78% 2,711.74 -6.94%
58. Nov 30, 2018 93.52 0.80 -8.27% 2,760.17 1.79%
59. Dec 31, 2018 86.15 -7.88% 2,506.85 -9.18%
Average: 0.69% 0.63%
Standard Deviation: 5.98% 3.13%

Show All

1 Data in USD $ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of PSX 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
VariancePSX 35.72
VarianceS&P 500 9.77
CovariancePSX, S&P 500 8.80
Correlation CoefficientPSX, S&P 5001 0.47
βPSX2 0.90
αPSX3 0.13

Calculations

1 CovariancePSX, S&P 500 ÷ (Standard DeviationPSX × Standard DeviationS&P 500)
= 8.80 ÷ (5.98 × 3.13)

2 CovariancePSX, S&P 500 ÷ VarianceS&P 500
= 8.80 ÷ 9.77

3 AveragePSX – βPSX × AverageS&P 500
= 0.690.90 × 0.63


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF 2.47%
Expected rate of return on market portfolio2 E(RM) 11.80%
Systematic risk (β) of Phillips 66’s common stock βPSX 0.90
Expected rate of return on Phillips 66’s common stock3 E(RPSX) 10.88%

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).

Calculations

2 See Details »

3 E(RPSX) = RF + βPSX [E(RM) – RF]
= 2.47% + 0.90 [11.80%2.47%]
= 10.88%