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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 [hidden% – hidden%]
= hidden%