Microsoft Excel LibreOffice Calc

Raytheon Technologies Corp. (NYSE:RTX)


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 Raytheon Technologies Corp.’s common stock.


Rates of Return

Raytheon Technologies Corp., monthly rates of return

Microsoft Excel LibreOffice Calc
Raytheon Technologies Corp. (RTX) Standard & Poor’s 500 (S&P 500)
t Date PriceRTX,t1 DividendRTX,t1 RRTX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2015 114.78 1,994.99
1. Feb 28, 2015 121.91 0.64 6.77% 2,104.50 5.49%
2. Mar 31, 2015 117.20 -3.86% 2,067.89 -1.74%
3. Apr 30, 2015 113.75 -2.94% 2,085.51 0.85%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2019 148.34 0.735 3.83% 3,140.98 3.40%
59. Dec 31, 2019 149.76 0.96% 3,230.78 2.86%
Average: 0.81% 0.88%
Standard deviation: 5.63% 3.45%
Raytheon Technologies Corp. (RTX) Standard & Poor’s 500 (S&P 500)
t Date PriceRTX,t1 DividendRTX,t1 RRTX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2015 114.78 1,994.99
1. Feb 28, 2015 121.91 0.64 6.77% 2,104.50 5.49%
2. Mar 31, 2015 117.20 -3.86% 2,067.89 -1.74%
3. Apr 30, 2015 113.75 -2.94% 2,085.51 0.85%
4. May 31, 2015 117.17 0.64 3.57% 2,107.39 1.05%
5. Jun 30, 2015 110.93 -5.33% 2,063.11 -2.10%
6. Jul 31, 2015 100.31 -9.57% 2,103.84 1.97%
7. Aug 31, 2015 91.61 0.64 -8.04% 1,972.18 -6.26%
8. Sep 30, 2015 88.99 -2.86% 1,920.03 -2.64%
9. Oct 31, 2015 98.41 10.59% 2,079.36 8.30%
10. Nov 30, 2015 96.05 0.64 -1.75% 2,080.41 0.05%
11. Dec 31, 2015 96.07 0.02% 2,043.94 -1.75%
12. Jan 31, 2016 87.69 -8.72% 1,940.24 -5.07%
13. Feb 29, 2016 96.62 0.64 10.91% 1,932.23 -0.41%
14. Mar 31, 2016 100.10 3.60% 2,059.74 6.60%
15. Apr 30, 2016 104.37 4.27% 2,065.30 0.27%
16. May 31, 2016 100.58 0.66 -3.00% 2,096.95 1.53%
17. Jun 30, 2016 102.55 1.96% 2,098.86 0.09%
18. Jul 31, 2016 107.65 4.97% 2,173.60 3.56%
19. Aug 31, 2016 106.43 0.66 -0.52% 2,170.95 -0.12%
20. Sep 30, 2016 101.60 -4.54% 2,168.27 -0.12%
21. Oct 31, 2016 102.20 0.59% 2,126.15 -1.94%
22. Nov 30, 2016 107.72 0.66 6.05% 2,198.81 3.42%
23. Dec 31, 2016 109.62 1.76% 2,238.83 1.82%
24. Jan 31, 2017 109.67 0.05% 2,278.87 1.79%
25. Feb 28, 2017 112.55 0.66 3.23% 2,363.64 3.72%
26. Mar 31, 2017 112.21 -0.30% 2,362.72 -0.04%
27. Apr 30, 2017 118.99 6.04% 2,384.20 0.91%
28. May 31, 2017 121.28 0.66 2.48% 2,411.80 1.16%
29. Jun 30, 2017 122.11 0.68% 2,423.41 0.48%
30. Jul 31, 2017 118.57 -2.90% 2,470.30 1.93%
31. Aug 31, 2017 119.72 0.70 1.56% 2,471.65 0.05%
32. Sep 30, 2017 116.08 -3.04% 2,519.36 1.93%
33. Oct 31, 2017 119.76 3.17% 2,575.26 2.22%
34. Nov 30, 2017 121.45 0.70 2.00% 2,647.58 2.81%
35. Dec 31, 2017 127.57 5.04% 2,673.61 0.98%
36. Jan 31, 2018 138.01 8.18% 2,823.81 5.62%
37. Feb 28, 2018 134.74 0.70 -1.86% 2,713.83 -3.89%
38. Mar 31, 2018 125.82 -6.62% 2,640.87 -2.69%
39. Apr 30, 2018 120.15 -4.51% 2,648.05 0.27%
40. May 31, 2018 124.82 0.70 4.47% 2,705.27 2.16%
41. Jun 30, 2018 125.03 0.17% 2,718.37 0.48%
42. Jul 31, 2018 135.74 8.57% 2,816.29 3.60%
43. Aug 31, 2018 131.70 0.70 -2.46% 2,901.52 3.03%
44. Sep 30, 2018 139.81 6.16% 2,913.98 0.43%
45. Oct 31, 2018 124.21 -11.16% 2,711.74 -6.94%
46. Nov 30, 2018 121.84 0.735 -1.32% 2,760.17 1.79%
47. Dec 31, 2018 106.48 -12.61% 2,506.85 -9.18%
48. Jan 31, 2019 118.07 10.88% 2,704.10 7.87%
49. Feb 28, 2019 125.67 0.735 7.06% 2,784.49 2.97%
50. Mar 31, 2019 128.89 2.56% 2,834.40 1.79%
51. Apr 30, 2019 142.61 10.64% 2,945.83 3.93%
52. May 31, 2019 126.30 0.735 -10.92% 2,752.06 -6.58%
53. Jun 30, 2019 130.20 3.09% 2,941.76 6.89%
54. Jul 31, 2019 133.60 2.61% 2,980.38 1.31%
55. Aug 31, 2019 130.24 0.735 -1.96% 2,926.46 -1.81%
56. Sep 30, 2019 136.52 4.82% 2,976.74 1.72%
57. Oct 31, 2019 143.58 5.17% 3,037.56 2.04%
58. Nov 30, 2019 148.34 0.735 3.83% 3,140.98 3.40%
59. Dec 31, 2019 149.76 0.96% 3,230.78 2.86%
Average: 0.81% 0.88%
Standard deviation: 5.63% 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 RTX 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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VarianceRTX 31.72
VarianceS&P 500 11.88
CovarianceRTX, S&P 500 14.72
Correlation coefficientRTX, S&P 5001 0.76
βRTX2 1.24
αRTX3 -0.28

Calculations

1 Correlation coefficientRTX, S&P 500
= CovarianceRTX, S&P 500 ÷ (Standard deviationRTX × Standard deviationS&P 500)
= 14.72 ÷ (5.63 × 3.45)

2 βRTX
= CovarianceRTX, S&P 500 ÷ VarianceS&P 500
= 14.72 ÷ 11.88

3 αRTX
= AverageRTX – βRTX × AverageS&P 500
= 0.811.24 × 0.88


Expected Rate of Return

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Assumptions
Rate of return on LT Treasury Composite1 RF 1.26%
Expected rate of return on market portfolio2 E(RM) 11.93%
Systematic risk (β) of Raytheon Technologies Corp.’s common stock βRTX 1.24
 
Expected rate of return on Raytheon Technologies Corp.’s common stock3 E(RRTX) 14.48%

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(RRTX) = RF + βRTX [E(RM) – RF]
= 1.26% + 1.24 [11.93%1.26%]
= 14.48%