Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Time Warner Inc. (NYSE:TWX)

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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 Time Warner Inc.’s common stock.


Rates of Return

Time Warner Inc., monthly rates of return

Microsoft Excel LibreOffice Calc
Time Warner Inc. (TWX) Standard & Poor’s 500 (S&P 500)
t Date PriceTWX,t1 DividendTWX,t1 RTWX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2013
1. Feb 28, 2013
2. Mar 31, 2013
3. Apr 30, 2013
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2017
59. Dec 31, 2017
Average (R):
Standard deviation:
Time Warner Inc. (TWX) Standard & Poor’s 500 (S&P 500)
t Date PriceTWX,t1 DividendTWX,t1 RTWX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2013
1. Feb 28, 2013
2. Mar 31, 2013
3. Apr 30, 2013
4. May 31, 2013
5. Jun 30, 2013
6. Jul 31, 2013
7. Aug 31, 2013
8. Sep 30, 2013
9. Oct 31, 2013
10. Nov 30, 2013
11. Dec 31, 2013
12. Jan 31, 2014
13. Feb 28, 2014
14. Mar 31, 2014
15. Apr 30, 2014
16. May 31, 2014
17. Jun 30, 2014
18. Jul 31, 2014
19. Aug 31, 2014
20. Sep 30, 2014
21. Oct 31, 2014
22. Nov 30, 2014
23. Dec 31, 2014
24. Jan 31, 2015
25. Feb 28, 2015
26. Mar 31, 2015
27. Apr 30, 2015
28. May 31, 2015
29. Jun 30, 2015
30. Jul 31, 2015
31. Aug 31, 2015
32. Sep 30, 2015
33. Oct 31, 2015
34. Nov 30, 2015
35. Dec 31, 2015
36. Jan 31, 2016
37. Feb 29, 2016
38. Mar 31, 2016
39. Apr 30, 2016
40. May 31, 2016
41. Jun 30, 2016
42. Jul 31, 2016
43. Aug 31, 2016
44. Sep 30, 2016
45. Oct 31, 2016
46. Nov 30, 2016
47. Dec 31, 2016
48. Jan 31, 2017
49. Feb 28, 2017
50. Mar 31, 2017
51. Apr 30, 2017
52. May 31, 2017
53. Jun 30, 2017
54. Jul 31, 2017
55. Aug 31, 2017
56. Sep 30, 2017
57. Oct 31, 2017
58. Nov 30, 2017
59. Dec 31, 2017
Average (R):
Standard deviation:

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 TWX during period t

3 Rate of return on S&P 500 (the market portfolio proxy) during period t


Variance and Covariance

Time Warner Inc., calculation of variance and covariance of returns

Microsoft Excel LibreOffice Calc
t Date RTWX,t RS&P 500,t (RTWX,tRTWX)2 (RS&P 500,tRS&P 500)2 (RTWX,tRTWX)×(RS&P 500,tRS&P 500)
1. Feb 28, 2013
2. Mar 31, 2013
3. Apr 30, 2013
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2017
59. Dec 31, 2017
Total (Σ):
t Date RTWX,t RS&P 500,t (RTWX,tRTWX)2 (RS&P 500,tRS&P 500)2 (RTWX,tRTWX)×(RS&P 500,tRS&P 500)
1. Feb 28, 2013
2. Mar 31, 2013
3. Apr 30, 2013
4. May 31, 2013
5. Jun 30, 2013
6. Jul 31, 2013
7. Aug 31, 2013
8. Sep 30, 2013
9. Oct 31, 2013
10. Nov 30, 2013
11. Dec 31, 2013
12. Jan 31, 2014
13. Feb 28, 2014
14. Mar 31, 2014
15. Apr 30, 2014
16. May 31, 2014
17. Jun 30, 2014
18. Jul 31, 2014
19. Aug 31, 2014
20. Sep 30, 2014
21. Oct 31, 2014
22. Nov 30, 2014
23. Dec 31, 2014
24. Jan 31, 2015
25. Feb 28, 2015
26. Mar 31, 2015
27. Apr 30, 2015
28. May 31, 2015
29. Jun 30, 2015
30. Jul 31, 2015
31. Aug 31, 2015
32. Sep 30, 2015
33. Oct 31, 2015
34. Nov 30, 2015
35. Dec 31, 2015
36. Jan 31, 2016
37. Feb 29, 2016
38. Mar 31, 2016
39. Apr 30, 2016
40. May 31, 2016
41. Jun 30, 2016
42. Jul 31, 2016
43. Aug 31, 2016
44. Sep 30, 2016
45. Oct 31, 2016
46. Nov 30, 2016
47. Dec 31, 2016
48. Jan 31, 2017
49. Feb 28, 2017
50. Mar 31, 2017
51. Apr 30, 2017
52. May 31, 2017
53. Jun 30, 2017
54. Jul 31, 2017
55. Aug 31, 2017
56. Sep 30, 2017
57. Oct 31, 2017
58. Nov 30, 2017
59. Dec 31, 2017
Total (Σ):

Show all

VarianceTWX = Σ(RTWX,tRTWX)2 ÷ (59 – 1)
= ÷ (59 – 1)
=

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= ÷ (59 – 1)
=

CovarianceTWX, S&P 500 = Σ(RTWX,tRTWX)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= ÷ (59 – 1)
=


Systematic Risk (β) Estimation

Microsoft Excel LibreOffice Calc
VarianceTWX
VarianceS&P 500
CovarianceTWX, S&P 500
Correlation coefficientTWX, S&P 5001
βTWX2
αTWX3

Calculations

1 Correlation coefficientTWX, S&P 500
= CovarianceTWX, S&P 500 ÷ (Standard deviationTWX × Standard deviationS&P 500)
= ÷ ( × )
=

2 βTWX
= CovarianceTWX, S&P 500 ÷ VarianceS&P 500
= ÷
=

3 αTWX
= AverageTWX – βTWX × AverageS&P 500
= ×
=


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF
Expected rate of return on market portfolio2 E(RM)
Systematic risk (β) of Time Warner Inc.’s common stock βTWX
 
Expected rate of return on Time Warner Inc.’s common stock3 E(RTWX)

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(RTWX) = RF + βTWX [E(RM) – RF]
= + []
=