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Microsoft Excel LibreOffice Calc


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 P&G's common stock.


Rates of Return

Procter & Gamble Co., monthly rates of return

Microsoft Excel LibreOffice Calc
Procter & Gamble Co. (PG) Standard & Poor's 500 (S&P 500)
t Date PricePG,t1 DividendPG,t1 RPG,t2 PriceS&P 500,t RS&P 500,t3
Jul 31, 2012 hidden hidden
1. Aug 31, 2012 hidden hidden hidden hidden
2. Sep 30, 2012 hidden hidden hidden hidden
3. Oct 31, 2012 hidden hidden hidden hidden hidden
. . . . . . .
. . . . . . .
. . . . . . .
70. May 31, 2018 hidden hidden hidden hidden
71. Jun 30, 2018 hidden hidden hidden hidden
Average: hidden hidden
Standard Deviation: hidden hidden
Procter & Gamble Co. (PG) Standard & Poor's 500 (S&P 500)
t Date PricePG,t1 DividendPG,t1 RPG,t2 PriceS&P 500,t RS&P 500,t3
Jul 31, 2012 hidden hidden
1. Aug 31, 2012 hidden hidden hidden hidden
2. Sep 30, 2012 hidden hidden hidden hidden
3. Oct 31, 2012 hidden hidden hidden hidden hidden
4. Nov 30, 2012 hidden hidden hidden hidden
5. Dec 31, 2012 hidden hidden hidden hidden
6. Jan 31, 2013 hidden hidden hidden hidden hidden
7. Feb 28, 2013 hidden hidden hidden hidden
8. Mar 31, 2013 hidden hidden hidden hidden
9. Apr 30, 2013 hidden hidden hidden hidden hidden
10. May 31, 2013 hidden hidden hidden hidden
11. Jun 30, 2013 hidden hidden hidden hidden
12. Jul 31, 2013 hidden hidden hidden hidden hidden
13. Aug 31, 2013 hidden hidden hidden hidden
14. Sep 30, 2013 hidden hidden hidden hidden
15. Oct 31, 2013 hidden hidden hidden hidden hidden
16. Nov 30, 2013 hidden hidden hidden hidden
17. Dec 31, 2013 hidden hidden hidden hidden
18. Jan 31, 2014 hidden hidden hidden hidden hidden
19. Feb 28, 2014 hidden hidden hidden hidden
20. Mar 31, 2014 hidden hidden hidden hidden
21. Apr 30, 2014 hidden hidden hidden hidden hidden
22. May 31, 2014 hidden hidden hidden hidden
23. Jun 30, 2014 hidden hidden hidden hidden
24. Jul 31, 2014 hidden hidden hidden hidden hidden
25. Aug 31, 2014 hidden hidden hidden hidden
26. Sep 30, 2014 hidden hidden hidden hidden
27. Oct 31, 2014 hidden hidden hidden hidden hidden
28. Nov 30, 2014 hidden hidden hidden hidden
29. Dec 31, 2014 hidden hidden hidden hidden
30. Jan 31, 2015 hidden hidden hidden hidden hidden
31. Feb 28, 2015 hidden hidden hidden hidden
32. Mar 31, 2015 hidden hidden hidden hidden
33. Apr 30, 2015 hidden hidden hidden hidden hidden
34. May 31, 2015 hidden hidden hidden hidden
35. Jun 30, 2015 hidden hidden hidden hidden
36. Jul 31, 2015 hidden hidden hidden hidden hidden
37. Aug 31, 2015 hidden hidden hidden hidden
38. Sep 30, 2015 hidden hidden hidden hidden
39. Oct 31, 2015 hidden hidden hidden hidden hidden
40. Nov 30, 2015 hidden hidden hidden hidden
41. Dec 31, 2015 hidden hidden hidden hidden
42. Jan 31, 2016 hidden hidden hidden hidden hidden
43. Feb 29, 2016 hidden hidden hidden hidden
44. Mar 31, 2016 hidden hidden hidden hidden
45. Apr 30, 2016 hidden hidden hidden hidden hidden
46. May 31, 2016 hidden hidden hidden hidden
47. Jun 30, 2016 hidden hidden hidden hidden
48. Jul 31, 2016 hidden hidden hidden hidden hidden
49. Aug 31, 2016 hidden hidden hidden hidden
50. Sep 30, 2016 hidden hidden hidden hidden
51. Oct 31, 2016 hidden hidden hidden hidden hidden
52. Nov 30, 2016 hidden hidden hidden hidden
53. Dec 31, 2016 hidden hidden hidden hidden
54. Jan 31, 2017 hidden hidden hidden hidden hidden
55. Feb 28, 2017 hidden hidden hidden hidden
56. Mar 31, 2017 hidden hidden hidden hidden
57. Apr 30, 2017 hidden hidden hidden hidden hidden
58. May 31, 2017 hidden hidden hidden hidden
59. Jun 30, 2017 hidden hidden hidden hidden
60. Jul 31, 2017 hidden hidden hidden hidden hidden
61. Aug 31, 2017 hidden hidden hidden hidden
62. Sep 30, 2017 hidden hidden hidden hidden
63. Oct 31, 2017 hidden hidden hidden hidden hidden
64. Nov 30, 2017 hidden hidden hidden hidden
65. Dec 31, 2017 hidden hidden hidden hidden
66. Jan 31, 2018 hidden hidden hidden hidden hidden
67. Feb 28, 2018 hidden hidden hidden hidden
68. Mar 31, 2018 hidden hidden hidden hidden
69. Apr 30, 2018 hidden hidden hidden hidden hidden
70. May 31, 2018 hidden hidden hidden hidden
71. Jun 30, 2018 hidden hidden hidden hidden
Average: hidden hidden
Standard Deviation: hidden hidden

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 PG 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
VariancePG hidden
VarianceS&P 500 hidden
CovariancePG, S&P 500 hidden
Correlation CoefficientPG, S&P 5001 hidden
βPG2 hidden
αPG3 hidden

Calculations

1 CovariancePG, S&P 500 ÷ (Standard DeviationPG × Standard DeviationS&P 500)
= hidden ÷ (hidden × hidden)

2 CovariancePG, S&P 500 ÷ VarianceS&P 500
= hidden ÷ hidden

3 AveragePG – βPG × AverageS&P 500
= hiddenhidden × hidden


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF hidden
Expected rate of return on market portfolio2 E(RM) hidden
Systematic risk (β) of P&G's common stock βPG hidden
Expected rate of return on P&G's common stock3 E(RPG) hidden

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(RPG) = RF + βPG [E(RM) – RF]
= hidden + hidden [hiddenhidden]
= hidden