Capital Asset Pricing Model (CAPM)
Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Abiomed Inc. common stock.
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Abiomed Inc. pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Enterprise Value to FCFF (EV/FCFF)
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Debt
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Rates of Return
Abiomed Inc., monthly rates of return
| Abiomed Inc. (ABMD) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceABMD,t1 | DividendABMD,t1 | RABMD,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Apr 30, 2016 | ||||||
| 1. | May 31, 2016 | |||||
| 2. | Jun 30, 2016 | |||||
| 3. | Jul 31, 2016 | |||||
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Feb 28, 2022 | |||||
| 71. | Mar 31, 2022 | |||||
| Average (R): | ||||||
| Standard deviation: | ||||||
| Abiomed Inc. (ABMD) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceABMD,t1 | DividendABMD,t1 | RABMD,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Apr 30, 2016 | ||||||
| 1. | May 31, 2016 | |||||
| 2. | Jun 30, 2016 | |||||
| 3. | Jul 31, 2016 | |||||
| 4. | Aug 31, 2016 | |||||
| 5. | Sep 30, 2016 | |||||
| 6. | Oct 31, 2016 | |||||
| 7. | Nov 30, 2016 | |||||
| 8. | Dec 31, 2016 | |||||
| 9. | Jan 31, 2017 | |||||
| 10. | Feb 28, 2017 | |||||
| 11. | Mar 31, 2017 | |||||
| 12. | Apr 30, 2017 | |||||
| 13. | May 31, 2017 | |||||
| 14. | Jun 30, 2017 | |||||
| 15. | Jul 31, 2017 | |||||
| 16. | Aug 31, 2017 | |||||
| 17. | Sep 30, 2017 | |||||
| 18. | Oct 31, 2017 | |||||
| 19. | Nov 30, 2017 | |||||
| 20. | Dec 31, 2017 | |||||
| 21. | Jan 31, 2018 | |||||
| 22. | Feb 28, 2018 | |||||
| 23. | Mar 31, 2018 | |||||
| 24. | Apr 30, 2018 | |||||
| 25. | May 31, 2018 | |||||
| 26. | Jun 30, 2018 | |||||
| 27. | Jul 31, 2018 | |||||
| 28. | Aug 31, 2018 | |||||
| 29. | Sep 30, 2018 | |||||
| 30. | Oct 31, 2018 | |||||
| 31. | Nov 30, 2018 | |||||
| 32. | Dec 31, 2018 | |||||
| 33. | Jan 31, 2019 | |||||
| 34. | Feb 28, 2019 | |||||
| 35. | Mar 31, 2019 | |||||
| 36. | Apr 30, 2019 | |||||
| 37. | May 31, 2019 | |||||
| 38. | Jun 30, 2019 | |||||
| 39. | Jul 31, 2019 | |||||
| 40. | Aug 31, 2019 | |||||
| 41. | Sep 30, 2019 | |||||
| 42. | Oct 31, 2019 | |||||
| 43. | Nov 30, 2019 | |||||
| 44. | Dec 31, 2019 | |||||
| 45. | Jan 31, 2020 | |||||
| 46. | Feb 29, 2020 | |||||
| 47. | Mar 31, 2020 | |||||
| 48. | Apr 30, 2020 | |||||
| 49. | May 31, 2020 | |||||
| 50. | Jun 30, 2020 | |||||
| 51. | Jul 31, 2020 | |||||
| 52. | Aug 31, 2020 | |||||
| 53. | Sep 30, 2020 | |||||
| 54. | Oct 31, 2020 | |||||
| 55. | Nov 30, 2020 | |||||
| 56. | Dec 31, 2020 | |||||
| 57. | Jan 31, 2021 | |||||
| 58. | Feb 28, 2021 | |||||
| 59. | Mar 31, 2021 | |||||
| 60. | Apr 30, 2021 | |||||
| 61. | May 31, 2021 | |||||
| 62. | Jun 30, 2021 | |||||
| 63. | Jul 31, 2021 | |||||
| 64. | Aug 31, 2021 | |||||
| 65. | Sep 30, 2021 | |||||
| 66. | Oct 31, 2021 | |||||
| 67. | Nov 30, 2021 | |||||
| 68. | Dec 31, 2021 | |||||
| 69. | Jan 31, 2022 | |||||
| 70. | Feb 28, 2022 | |||||
| 71. | Mar 31, 2022 | |||||
| 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 ABMD during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Abiomed Inc., calculation of variance and covariance of returns
| t | Date | RABMD,t | RS&P 500,t | (RABMD,t–RABMD)2 | (RS&P 500,t–RS&P 500)2 | (RABMD,t–RABMD)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | May 31, 2016 | |||||
| 2. | Jun 30, 2016 | |||||
| 3. | Jul 31, 2016 | |||||
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Feb 28, 2022 | |||||
| 71. | Mar 31, 2022 | |||||
| Total (Σ): | ||||||
| t | Date | RABMD,t | RS&P 500,t | (RABMD,t–RABMD)2 | (RS&P 500,t–RS&P 500)2 | (RABMD,t–RABMD)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | May 31, 2016 | |||||
| 2. | Jun 30, 2016 | |||||
| 3. | Jul 31, 2016 | |||||
| 4. | Aug 31, 2016 | |||||
| 5. | Sep 30, 2016 | |||||
| 6. | Oct 31, 2016 | |||||
| 7. | Nov 30, 2016 | |||||
| 8. | Dec 31, 2016 | |||||
| 9. | Jan 31, 2017 | |||||
| 10. | Feb 28, 2017 | |||||
| 11. | Mar 31, 2017 | |||||
| 12. | Apr 30, 2017 | |||||
| 13. | May 31, 2017 | |||||
| 14. | Jun 30, 2017 | |||||
| 15. | Jul 31, 2017 | |||||
| 16. | Aug 31, 2017 | |||||
| 17. | Sep 30, 2017 | |||||
| 18. | Oct 31, 2017 | |||||
| 19. | Nov 30, 2017 | |||||
| 20. | Dec 31, 2017 | |||||
| 21. | Jan 31, 2018 | |||||
| 22. | Feb 28, 2018 | |||||
| 23. | Mar 31, 2018 | |||||
| 24. | Apr 30, 2018 | |||||
| 25. | May 31, 2018 | |||||
| 26. | Jun 30, 2018 | |||||
| 27. | Jul 31, 2018 | |||||
| 28. | Aug 31, 2018 | |||||
| 29. | Sep 30, 2018 | |||||
| 30. | Oct 31, 2018 | |||||
| 31. | Nov 30, 2018 | |||||
| 32. | Dec 31, 2018 | |||||
| 33. | Jan 31, 2019 | |||||
| 34. | Feb 28, 2019 | |||||
| 35. | Mar 31, 2019 | |||||
| 36. | Apr 30, 2019 | |||||
| 37. | May 31, 2019 | |||||
| 38. | Jun 30, 2019 | |||||
| 39. | Jul 31, 2019 | |||||
| 40. | Aug 31, 2019 | |||||
| 41. | Sep 30, 2019 | |||||
| 42. | Oct 31, 2019 | |||||
| 43. | Nov 30, 2019 | |||||
| 44. | Dec 31, 2019 | |||||
| 45. | Jan 31, 2020 | |||||
| 46. | Feb 29, 2020 | |||||
| 47. | Mar 31, 2020 | |||||
| 48. | Apr 30, 2020 | |||||
| 49. | May 31, 2020 | |||||
| 50. | Jun 30, 2020 | |||||
| 51. | Jul 31, 2020 | |||||
| 52. | Aug 31, 2020 | |||||
| 53. | Sep 30, 2020 | |||||
| 54. | Oct 31, 2020 | |||||
| 55. | Nov 30, 2020 | |||||
| 56. | Dec 31, 2020 | |||||
| 57. | Jan 31, 2021 | |||||
| 58. | Feb 28, 2021 | |||||
| 59. | Mar 31, 2021 | |||||
| 60. | Apr 30, 2021 | |||||
| 61. | May 31, 2021 | |||||
| 62. | Jun 30, 2021 | |||||
| 63. | Jul 31, 2021 | |||||
| 64. | Aug 31, 2021 | |||||
| 65. | Sep 30, 2021 | |||||
| 66. | Oct 31, 2021 | |||||
| 67. | Nov 30, 2021 | |||||
| 68. | Dec 31, 2021 | |||||
| 69. | Jan 31, 2022 | |||||
| 70. | Feb 28, 2022 | |||||
| 71. | Mar 31, 2022 | |||||
| Total (Σ): | ||||||
Show all
VarianceABMD = Σ(RABMD,t–RABMD)2 ÷ (71 – 1)
= ÷ (71 – 1)
=
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)
= ÷ (71 – 1)
=
CovarianceABMD, S&P 500 = Σ(RABMD,t–RABMD)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)
= ÷ (71 – 1)
=
Systematic Risk (β) Estimation
| VarianceABMD | |
| VarianceS&P 500 | |
| CovarianceABMD, S&P 500 | |
| Correlation coefficientABMD, S&P 5001 | |
| βABMD2 | |
| αABMD3 |
Calculations
1 Correlation coefficientABMD, S&P 500
= CovarianceABMD, S&P 500 ÷ (Standard deviationABMD × Standard deviationS&P 500)
= ÷ ( × )
=
2 βABMD
= CovarianceABMD, S&P 500 ÷ VarianceS&P 500
= ÷
=
3 αABMD
= AverageABMD – βABMD × AverageS&P 500
= – ×
=
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | |
| Expected rate of return on market portfolio2 | E(RM) | |
| Systematic risk (β) of Abiomed Inc. common stock | βABMD | |
| Expected rate of return on Abiomed Inc. common stock3 | E(RABMD) | |
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).
3 E(RABMD) = RF + βABMD [E(RM) – RF]
= + [ – ]
=