Stock Analysis on Net

Waste Management Inc. (NYSE:WM)

This company has been moved to the archive! The financial data has not been updated since February 15, 2022.

Capital Asset Pricing Model (CAPM)

Microsoft Excel

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Waste Management Inc. common stock.


Rates of Return

Waste Management Inc., monthly rates of return

Microsoft Excel
Waste Management Inc. (WM) Standard & Poor’s 500 (S&P 500)
t Date PriceWM,t1 DividendWM,t1 RWM,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2017 $69.50 2,278.87
1. Feb 28, 2017 $73.32 5.50% 2,363.64 3.72%
2. Mar 31, 2017 $72.92 $0.425 0.03% 2,362.72 -0.04%
3. Apr 30, 2017 $72.78 -0.19% 2,384.20 0.91%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2021 $160.67 0.27% 4,567.00 -0.83%
59. Dec 31, 2021 $166.90 $0.575 4.24% 4,766.18 4.36%
Average (R): 1.79% 1.36%
Standard deviation: 4.98% 4.48%
Waste Management Inc. (WM) Standard & Poor’s 500 (S&P 500)
t Date PriceWM,t1 DividendWM,t1 RWM,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2017 $69.50 2,278.87
1. Feb 28, 2017 $73.32 5.50% 2,363.64 3.72%
2. Mar 31, 2017 $72.92 $0.425 0.03% 2,362.72 -0.04%
3. Apr 30, 2017 $72.78 -0.19% 2,384.20 0.91%
4. May 31, 2017 $72.91 0.18% 2,411.80 1.16%
5. Jun 30, 2017 $73.35 $0.425 1.19% 2,423.41 0.48%
6. Jul 31, 2017 $75.15 2.45% 2,470.30 1.93%
7. Aug 31, 2017 $77.11 2.61% 2,471.65 0.05%
8. Sep 30, 2017 $78.27 $0.425 2.06% 2,519.36 1.93%
9. Oct 31, 2017 $82.17 4.98% 2,575.26 2.22%
10. Nov 30, 2017 $82.25 $0.425 0.61% 2,647.58 2.81%
11. Dec 31, 2017 $86.30 4.92% 2,673.61 0.98%
12. Jan 31, 2018 $88.43 2.47% 2,823.81 5.62%
13. Feb 28, 2018 $86.32 -2.39% 2,713.83 -3.89%
14. Mar 31, 2018 $84.12 $0.465 -2.01% 2,640.87 -2.69%
15. Apr 30, 2018 $81.29 -3.36% 2,648.05 0.27%
16. May 31, 2018 $82.71 1.75% 2,705.27 2.16%
17. Jun 30, 2018 $81.34 $0.465 -1.09% 2,718.37 0.48%
18. Jul 31, 2018 $90.00 10.65% 2,816.29 3.60%
19. Aug 31, 2018 $90.90 1.00% 2,901.52 3.03%
20. Sep 30, 2018 $90.36 $0.465 -0.08% 2,913.98 0.43%
21. Oct 31, 2018 $89.47 -0.98% 2,711.74 -6.94%
22. Nov 30, 2018 $93.75 $0.465 5.30% 2,760.17 1.79%
23. Dec 31, 2018 $88.99 -5.08% 2,506.85 -9.18%
24. Jan 31, 2019 $95.67 7.51% 2,704.10 7.87%
25. Feb 28, 2019 $101.25 5.83% 2,784.49 2.97%
26. Mar 31, 2019 $103.91 $0.5125 3.13% 2,834.40 1.79%
27. Apr 30, 2019 $107.34 3.30% 2,945.83 3.93%
28. May 31, 2019 $109.35 1.87% 2,752.06 -6.58%
29. Jun 30, 2019 $115.37 $0.5125 5.97% 2,941.76 6.89%
30. Jul 31, 2019 $117.00 1.41% 2,980.38 1.31%
31. Aug 31, 2019 $119.35 2.01% 2,926.46 -1.81%
32. Sep 30, 2019 $115.00 $0.5125 -3.22% 2,976.74 1.72%
33. Oct 31, 2019 $112.21 -2.43% 3,037.56 2.04%
34. Nov 30, 2019 $112.91 0.62% 3,140.98 3.40%
35. Dec 31, 2019 $113.96 $0.5125 1.38% 3,230.78 2.86%
36. Jan 31, 2020 $121.70 6.79% 3,225.52 -0.16%
37. Feb 29, 2020 $110.81 -8.95% 2,954.22 -8.41%
38. Mar 31, 2020 $92.56 $0.545 -15.98% 2,584.59 -12.51%
39. Apr 30, 2020 $100.02 8.06% 2,912.43 12.68%
40. May 31, 2020 $106.75 6.73% 3,044.31 4.53%
41. Jun 30, 2020 $105.91 $0.545 -0.28% 3,100.29 1.84%
42. Jul 31, 2020 $109.60 3.48% 3,271.12 5.51%
43. Aug 31, 2020 $114.00 4.01% 3,500.31 7.01%
44. Sep 30, 2020 $113.17 $0.545 -0.25% 3,363.00 -3.92%
45. Oct 31, 2020 $107.91 -4.65% 3,269.96 -2.77%
46. Nov 30, 2020 $119.13 10.40% 3,621.63 10.75%
47. Dec 31, 2020 $117.93 $0.545 -0.55% 3,756.07 3.71%
48. Jan 31, 2021 $111.32 -5.61% 3,714.24 -1.11%
49. Feb 28, 2021 $110.89 -0.39% 3,811.15 2.61%
50. Mar 31, 2021 $129.02 $0.575 16.87% 3,972.89 4.24%
51. Apr 30, 2021 $137.97 6.94% 4,181.17 5.24%
52. May 31, 2021 $140.68 1.96% 4,204.11 0.55%
53. Jun 30, 2021 $140.11 $0.575 0.00% 4,297.50 2.22%
54. Jul 31, 2021 $148.26 5.82% 4,395.26 2.27%
55. Aug 31, 2021 $155.11 4.62% 4,522.68 2.90%
56. Sep 30, 2021 $149.36 $0.575 -3.34% 4,307.54 -4.76%
57. Oct 31, 2021 $160.23 7.28% 4,605.38 6.91%
58. Nov 30, 2021 $160.67 0.27% 4,567.00 -0.83%
59. Dec 31, 2021 $166.90 $0.575 4.24% 4,766.18 4.36%
Average (R): 1.79% 1.36%
Standard deviation: 4.98% 4.48%

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

2 Rate of return on common stock of WM during period t

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


Variance and Covariance

Waste Management Inc., calculation of variance and covariance of returns

Microsoft Excel
t Date RWM,t RS&P 500,t (RWM,tRWM)2 (RS&P 500,tRS&P 500)2 (RWM,tRWM)×(RS&P 500,tRS&P 500)
1. Feb 28, 2017 5.50% 3.72% 13.76 5.58 8.76
2. Mar 31, 2017 0.03% -0.04% 3.07 1.95 2.45
3. Apr 30, 2017 -0.19% 0.91% 3.91 0.20 0.89
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2021 0.27% -0.83% 2.29 4.80 3.31
59. Dec 31, 2021 4.24% 4.36% 6.00 9.02 7.35
Total (Σ): 1,440.81 1,164.17 959.75
t Date RWM,t RS&P 500,t (RWM,tRWM)2 (RS&P 500,tRS&P 500)2 (RWM,tRWM)×(RS&P 500,tRS&P 500)
1. Feb 28, 2017 5.50% 3.72% 13.76 5.58 8.76
2. Mar 31, 2017 0.03% -0.04% 3.07 1.95 2.45
3. Apr 30, 2017 -0.19% 0.91% 3.91 0.20 0.89
4. May 31, 2017 0.18% 1.16% 2.59 0.04 0.32
5. Jun 30, 2017 1.19% 0.48% 0.36 0.77 0.53
6. Jul 31, 2017 2.45% 1.93% 0.45 0.33 0.39
7. Aug 31, 2017 2.61% 0.05% 0.67 1.70 -1.07
8. Sep 30, 2017 2.06% 1.93% 0.07 0.33 0.15
9. Oct 31, 2017 4.98% 2.22% 10.22 0.74 2.75
10. Nov 30, 2017 0.61% 2.81% 1.37 2.10 -1.70
11. Dec 31, 2017 4.92% 0.98% 9.84 0.14 -1.18
12. Jan 31, 2018 2.47% 5.62% 0.46 18.15 2.90
13. Feb 28, 2018 -2.39% -3.89% 17.41 27.59 21.92
14. Mar 31, 2018 -2.01% -2.69% 14.41 16.37 15.36
15. Apr 30, 2018 -3.36% 0.27% 26.53 1.18 5.59
16. May 31, 2018 1.75% 2.16% 0.00 0.64 -0.03
17. Jun 30, 2018 -1.09% 0.48% 8.30 0.76 2.52
18. Jul 31, 2018 10.65% 3.60% 78.50 5.04 19.88
19. Aug 31, 2018 1.00% 3.03% 0.62 2.78 -1.31
20. Sep 30, 2018 -0.08% 0.43% 3.49 0.86 1.74
21. Oct 31, 2018 -0.98% -6.94% 7.68 68.86 23.00
22. Nov 30, 2018 5.30% 1.79% 12.37 0.18 1.51
23. Dec 31, 2018 -5.08% -9.18% 47.11 111.00 72.32
24. Jan 31, 2019 7.51% 7.87% 32.72 42.39 37.24
25. Feb 28, 2019 5.83% 2.97% 16.37 2.61 6.53
26. Mar 31, 2019 3.13% 1.79% 1.81 0.19 0.59
27. Apr 30, 2019 3.30% 3.93% 2.29 6.62 3.90
28. May 31, 2019 1.87% -6.58% 0.01 62.97 -0.68
29. Jun 30, 2019 5.97% 6.89% 17.53 30.64 23.18
30. Jul 31, 2019 1.41% 1.31% 0.14 0.00 0.02
31. Aug 31, 2019 2.01% -1.81% 0.05 10.03 -0.70
32. Sep 30, 2019 -3.22% 1.72% 25.02 0.13 -1.80
33. Oct 31, 2019 -2.43% 2.04% 17.75 0.47 -2.89
34. Nov 30, 2019 0.62% 3.40% 1.35 4.19 -2.38
35. Dec 31, 2019 1.38% 2.86% 0.16 2.25 -0.60
36. Jan 31, 2020 6.79% -0.16% 25.05 2.31 -7.61
37. Feb 29, 2020 -8.95% -8.41% 115.24 95.43 104.87
38. Mar 31, 2020 -15.98% -12.51% 315.58 192.37 246.39
39. Apr 30, 2020 8.06% 12.68% 39.35 128.29 71.05
40. May 31, 2020 6.73% 4.53% 24.42 10.05 15.67
41. Jun 30, 2020 -0.28% 1.84% 4.26 0.23 -0.99
42. Jul 31, 2020 3.48% 5.51% 2.88 17.24 7.05
43. Aug 31, 2020 4.01% 7.01% 4.96 31.91 12.58
44. Sep 30, 2020 -0.25% -3.92% 4.15 27.89 10.75
45. Oct 31, 2020 -4.65% -2.77% 41.40 17.01 26.54
46. Nov 30, 2020 10.40% 10.75% 74.15 88.30 80.91
47. Dec 31, 2020 -0.55% 3.71% 5.46 5.54 -5.50
48. Jan 31, 2021 -5.61% -1.11% 54.64 6.11 18.27
49. Feb 28, 2021 -0.39% 2.61% 4.72 1.57 -2.72
50. Mar 31, 2021 16.87% 4.24% 227.45 8.33 43.52
51. Apr 30, 2021 6.94% 5.24% 26.53 15.09 20.01
52. May 31, 2021 1.96% 0.55% 0.03 0.65 -0.14
53. Jun 30, 2021 0.00% 2.22% 3.18 0.75 -1.54
54. Jul 31, 2021 5.82% 2.27% 16.24 0.84 3.70
55. Aug 31, 2021 4.62% 2.90% 8.03 2.38 4.37
56. Sep 30, 2021 -3.34% -4.76% 26.24 37.39 31.33
57. Oct 31, 2021 7.28% 6.91% 30.15 30.87 30.51
58. Nov 30, 2021 0.27% -0.83% 2.29 4.80 3.31
59. Dec 31, 2021 4.24% 4.36% 6.00 9.02 7.35
Total (Σ): 1,440.81 1,164.17 959.75

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VarianceWM = Σ(RWM,tRWM)2 ÷ (59 – 1)
= 1,440.81 ÷ (59 – 1)
= 24.84

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= 1,164.17 ÷ (59 – 1)
= 20.07

CovarianceWM, S&P 500 = Σ(RWM,tRWM)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= 959.75 ÷ (59 – 1)
= 16.55


Systematic Risk (β) Estimation

Microsoft Excel
VarianceWM 24.84
VarianceS&P 500 20.07
CovarianceWM, S&P 500 16.55
Correlation coefficientWM, S&P 5001 0.74
βWM2 0.82
αWM3 0.67%

Calculations

1 Correlation coefficientWM, S&P 500
= CovarianceWM, S&P 500 ÷ (Standard deviationWM × Standard deviationS&P 500)
= 16.55 ÷ (4.98% × 4.48%)
= 0.74

2 βWM
= CovarianceWM, S&P 500 ÷ VarianceS&P 500
= 16.55 ÷ 20.07
= 0.82

3 αWM
= AverageWM – βWM × AverageS&P 500
= 1.79%0.82 × 1.36%
= 0.67%


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk (β) of Waste Management Inc. common stock βWM 0.82
 
Expected rate of return on Waste Management Inc. common stock3 E(RWM) 11.99%

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(RWM) = RF + βWM [E(RM) – RF]
= 4.43% + 0.82 [13.60%4.43%]
= 11.99%