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 Adobe Inc. common stock.
Rates of Return
Adobe Inc., monthly rates of return
| Adobe Inc. (ADBE) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceADBE,t1 | DividendADBE,t1 | RADBE,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Dec 31, 2018 | $226.24 | 2,506.85 | ||||
| 1. | Jan 31, 2019 | $247.82 | 9.54% | 2,704.10 | 7.87% | |
| 2. | Feb 28, 2019 | $262.50 | 5.92% | 2,784.49 | 2.97% | |
| 3. | Mar 31, 2019 | $266.49 | 1.52% | 2,834.40 | 1.79% | |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Oct 31, 2024 | $478.08 | -7.67% | 5,705.45 | -0.99% | |
| 71. | Nov 30, 2024 | $515.93 | 7.92% | 6,032.38 | 5.73% | |
| Average (R): | 1.64% | 1.37% | ||||
| Standard deviation: | 9.78% | 5.03% | ||||
| Adobe Inc. (ADBE) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceADBE,t1 | DividendADBE,t1 | RADBE,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Dec 31, 2018 | $226.24 | 2,506.85 | ||||
| 1. | Jan 31, 2019 | $247.82 | 9.54% | 2,704.10 | 7.87% | |
| 2. | Feb 28, 2019 | $262.50 | 5.92% | 2,784.49 | 2.97% | |
| 3. | Mar 31, 2019 | $266.49 | 1.52% | 2,834.40 | 1.79% | |
| 4. | Apr 30, 2019 | $289.25 | 8.54% | 2,945.83 | 3.93% | |
| 5. | May 31, 2019 | $270.90 | -6.34% | 2,752.06 | -6.58% | |
| 6. | Jun 30, 2019 | $294.65 | 8.77% | 2,941.76 | 6.89% | |
| 7. | Jul 31, 2019 | $298.86 | 1.43% | 2,980.38 | 1.31% | |
| 8. | Aug 31, 2019 | $284.51 | -4.80% | 2,926.46 | -1.81% | |
| 9. | Sep 30, 2019 | $276.25 | -2.90% | 2,976.74 | 1.72% | |
| 10. | Oct 31, 2019 | $277.93 | 0.61% | 3,037.56 | 2.04% | |
| 11. | Nov 30, 2019 | $309.53 | 11.37% | 3,140.98 | 3.40% | |
| 12. | Dec 31, 2019 | $329.81 | 6.55% | 3,230.78 | 2.86% | |
| 13. | Jan 31, 2020 | $351.14 | 6.47% | 3,225.52 | -0.16% | |
| 14. | Feb 29, 2020 | $345.12 | -1.71% | 2,954.22 | -8.41% | |
| 15. | Mar 31, 2020 | $318.24 | -7.79% | 2,584.59 | -12.51% | |
| 16. | Apr 30, 2020 | $353.64 | 11.12% | 2,912.43 | 12.68% | |
| 17. | May 31, 2020 | $386.60 | 9.32% | 3,044.31 | 4.53% | |
| 18. | Jun 30, 2020 | $435.31 | 12.60% | 3,100.29 | 1.84% | |
| 19. | Jul 31, 2020 | $444.32 | 2.07% | 3,271.12 | 5.51% | |
| 20. | Aug 31, 2020 | $513.39 | 15.55% | 3,500.31 | 7.01% | |
| 21. | Sep 30, 2020 | $490.43 | -4.47% | 3,363.00 | -3.92% | |
| 22. | Oct 31, 2020 | $447.10 | -8.84% | 3,269.96 | -2.77% | |
| 23. | Nov 30, 2020 | $478.47 | 7.02% | 3,621.63 | 10.75% | |
| 24. | Dec 31, 2020 | $500.12 | 4.52% | 3,756.07 | 3.71% | |
| 25. | Jan 31, 2021 | $458.77 | -8.27% | 3,714.24 | -1.11% | |
| 26. | Feb 28, 2021 | $459.67 | 0.20% | 3,811.15 | 2.61% | |
| 27. | Mar 31, 2021 | $475.37 | 3.42% | 3,972.89 | 4.24% | |
| 28. | Apr 30, 2021 | $508.34 | 6.94% | 4,181.17 | 5.24% | |
| 29. | May 31, 2021 | $504.58 | -0.74% | 4,204.11 | 0.55% | |
| 30. | Jun 30, 2021 | $585.64 | 16.06% | 4,297.50 | 2.22% | |
| 31. | Jul 31, 2021 | $621.63 | 6.15% | 4,395.26 | 2.27% | |
| 32. | Aug 31, 2021 | $663.70 | 6.77% | 4,522.68 | 2.90% | |
| 33. | Sep 30, 2021 | $575.72 | -13.26% | 4,307.54 | -4.76% | |
| 34. | Oct 31, 2021 | $650.36 | 12.96% | 4,605.38 | 6.91% | |
| 35. | Nov 30, 2021 | $669.85 | 3.00% | 4,567.00 | -0.83% | |
| 36. | Dec 31, 2021 | $567.06 | -15.35% | 4,766.18 | 4.36% | |
| 37. | Jan 31, 2022 | $534.30 | -5.78% | 4,515.55 | -5.26% | |
| 38. | Feb 28, 2022 | $467.68 | -12.47% | 4,373.94 | -3.14% | |
| 39. | Mar 31, 2022 | $455.62 | -2.58% | 4,530.41 | 3.58% | |
| 40. | Apr 30, 2022 | $395.95 | -13.10% | 4,131.93 | -8.80% | |
| 41. | May 31, 2022 | $416.48 | 5.18% | 4,132.15 | 0.01% | |
| 42. | Jun 30, 2022 | $366.06 | -12.11% | 3,785.38 | -8.39% | |
| 43. | Jul 31, 2022 | $410.12 | 12.04% | 4,130.29 | 9.11% | |
| 44. | Aug 31, 2022 | $373.44 | -8.94% | 3,955.00 | -4.24% | |
| 45. | Sep 30, 2022 | $275.20 | -26.31% | 3,585.62 | -9.34% | |
| 46. | Oct 31, 2022 | $318.50 | 15.73% | 3,871.98 | 7.99% | |
| 47. | Nov 30, 2022 | $344.93 | 8.30% | 4,080.11 | 5.38% | |
| 48. | Dec 31, 2022 | $336.53 | -2.44% | 3,839.50 | -5.90% | |
| 49. | Jan 31, 2023 | $370.34 | 10.05% | 4,076.60 | 6.18% | |
| 50. | Feb 28, 2023 | $323.95 | -12.53% | 3,970.15 | -2.61% | |
| 51. | Mar 31, 2023 | $385.37 | 18.96% | 4,109.31 | 3.51% | |
| 52. | Apr 30, 2023 | $377.56 | -2.03% | 4,169.48 | 1.46% | |
| 53. | May 31, 2023 | $417.79 | 10.66% | 4,179.83 | 0.25% | |
| 54. | Jun 30, 2023 | $488.99 | 17.04% | 4,376.86 | 4.71% | |
| 55. | Jul 31, 2023 | $546.17 | 11.69% | 4,588.96 | 4.85% | |
| 56. | Aug 31, 2023 | $559.34 | 2.41% | 4,507.66 | -1.77% | |
| 57. | Sep 30, 2023 | $509.90 | -8.84% | 4,288.05 | -4.87% | |
| 58. | Oct 31, 2023 | $532.06 | 4.35% | 4,193.80 | -2.20% | |
| 59. | Nov 30, 2023 | $611.01 | 14.84% | 4,567.80 | 8.92% | |
| 60. | Dec 31, 2023 | $596.60 | -2.36% | 4,769.83 | 4.42% | |
| 61. | Jan 31, 2024 | $617.78 | 3.55% | 4,845.65 | 1.59% | |
| 62. | Feb 29, 2024 | $560.28 | -9.31% | 5,096.27 | 5.17% | |
| 63. | Mar 31, 2024 | $504.60 | -9.94% | 5,254.35 | 3.10% | |
| 64. | Apr 30, 2024 | $462.83 | -8.28% | 5,035.69 | -4.16% | |
| 65. | May 31, 2024 | $444.76 | -3.90% | 5,277.51 | 4.80% | |
| 66. | Jun 30, 2024 | $555.54 | 24.91% | 5,460.48 | 3.47% | |
| 67. | Jul 31, 2024 | $551.65 | -0.70% | 5,522.30 | 1.13% | |
| 68. | Aug 31, 2024 | $574.41 | 4.13% | 5,648.40 | 2.28% | |
| 69. | Sep 30, 2024 | $517.78 | -9.86% | 5,762.48 | 2.02% | |
| 70. | Oct 31, 2024 | $478.08 | -7.67% | 5,705.45 | -0.99% | |
| 71. | Nov 30, 2024 | $515.93 | 7.92% | 6,032.38 | 5.73% | |
| Average (R): | 1.64% | 1.37% | ||||
| Standard deviation: | 9.78% | 5.03% | ||||
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of ADBE during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Adobe Inc., calculation of variance and covariance of returns
| t | Date | RADBE,t | RS&P 500,t | (RADBE,t–RADBE)2 | (RS&P 500,t–RS&P 500)2 | (RADBE,t–RADBE)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Jan 31, 2019 | 9.54% | 7.87% | 62.36 | 42.23 | 51.32 |
| 2. | Feb 28, 2019 | 5.92% | 2.97% | 18.33 | 2.57 | 6.86 |
| 3. | Mar 31, 2019 | 1.52% | 1.79% | 0.01 | 0.18 | -0.05 |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Oct 31, 2024 | -7.67% | -0.99% | 86.66 | 5.57 | 21.97 |
| 71. | Nov 30, 2024 | 7.92% | 5.73% | 39.38 | 19.01 | 27.36 |
| Total (Σ): | 6,689.01 | 1,770.82 | 2,294.73 | |||
| t | Date | RADBE,t | RS&P 500,t | (RADBE,t–RADBE)2 | (RS&P 500,t–RS&P 500)2 | (RADBE,t–RADBE)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Jan 31, 2019 | 9.54% | 7.87% | 62.36 | 42.23 | 51.32 |
| 2. | Feb 28, 2019 | 5.92% | 2.97% | 18.33 | 2.57 | 6.86 |
| 3. | Mar 31, 2019 | 1.52% | 1.79% | 0.01 | 0.18 | -0.05 |
| 4. | Apr 30, 2019 | 8.54% | 3.93% | 47.59 | 6.56 | 17.67 |
| 5. | May 31, 2019 | -6.34% | -6.58% | 63.77 | 63.16 | 63.47 |
| 6. | Jun 30, 2019 | 8.77% | 6.89% | 50.77 | 30.51 | 39.35 |
| 7. | Jul 31, 2019 | 1.43% | 1.31% | 0.05 | 0.00 | 0.01 |
| 8. | Aug 31, 2019 | -4.80% | -1.81% | 41.52 | 10.11 | 20.48 |
| 9. | Sep 30, 2019 | -2.90% | 1.72% | 20.66 | 0.12 | -1.58 |
| 10. | Oct 31, 2019 | 0.61% | 2.04% | 1.07 | 0.45 | -0.70 |
| 11. | Nov 30, 2019 | 11.37% | 3.40% | 94.63 | 4.14 | 19.79 |
| 12. | Dec 31, 2019 | 6.55% | 2.86% | 24.11 | 2.22 | 7.31 |
| 13. | Jan 31, 2020 | 6.47% | -0.16% | 23.29 | 2.35 | -7.40 |
| 14. | Feb 29, 2020 | -1.71% | -8.41% | 11.26 | 95.67 | 32.83 |
| 15. | Mar 31, 2020 | -7.79% | -12.51% | 88.93 | 192.70 | 130.91 |
| 16. | Apr 30, 2020 | 11.12% | 12.68% | 89.91 | 128.02 | 107.28 |
| 17. | May 31, 2020 | 9.32% | 4.53% | 58.96 | 9.97 | 24.25 |
| 18. | Jun 30, 2020 | 12.60% | 1.84% | 120.07 | 0.22 | 5.14 |
| 19. | Jul 31, 2020 | 2.07% | 5.51% | 0.18 | 17.14 | 1.77 |
| 20. | Aug 31, 2020 | 15.55% | 7.01% | 193.30 | 31.77 | 78.37 |
| 21. | Sep 30, 2020 | -4.47% | -3.92% | 37.38 | 28.01 | 32.36 |
| 22. | Oct 31, 2020 | -8.84% | -2.77% | 109.76 | 17.11 | 43.34 |
| 23. | Nov 30, 2020 | 7.02% | 10.75% | 28.89 | 88.07 | 50.44 |
| 24. | Dec 31, 2020 | 4.52% | 3.71% | 8.31 | 5.49 | 6.75 |
| 25. | Jan 31, 2021 | -8.27% | -1.11% | 98.20 | 6.17 | 24.61 |
| 26. | Feb 28, 2021 | 0.20% | 2.61% | 2.09 | 1.54 | -1.79 |
| 27. | Mar 31, 2021 | 3.42% | 4.24% | 3.15 | 8.26 | 5.10 |
| 28. | Apr 30, 2021 | 6.94% | 5.24% | 28.03 | 15.00 | 20.50 |
| 29. | May 31, 2021 | -0.74% | 0.55% | 5.67 | 0.67 | 1.96 |
| 30. | Jun 30, 2021 | 16.06% | 2.22% | 208.03 | 0.73 | 12.28 |
| 31. | Jul 31, 2021 | 6.15% | 2.27% | 20.28 | 0.82 | 4.08 |
| 32. | Aug 31, 2021 | 6.77% | 2.90% | 26.28 | 2.34 | 7.84 |
| 33. | Sep 30, 2021 | -13.26% | -4.76% | 221.94 | 37.54 | 91.28 |
| 34. | Oct 31, 2021 | 12.96% | 6.91% | 128.21 | 30.74 | 62.78 |
| 35. | Nov 30, 2021 | 3.00% | -0.83% | 1.84 | 4.85 | -2.99 |
| 36. | Dec 31, 2021 | -15.35% | 4.36% | 288.56 | 8.95 | -50.82 |
| 37. | Jan 31, 2022 | -5.78% | -5.26% | 55.04 | 43.94 | 49.18 |
| 38. | Feb 28, 2022 | -12.47% | -3.14% | 199.10 | 20.30 | 63.58 |
| 39. | Mar 31, 2022 | -2.58% | 3.58% | 17.81 | 4.87 | -9.32 |
| 40. | Apr 30, 2022 | -13.10% | -8.80% | 217.21 | 103.34 | 149.82 |
| 41. | May 31, 2022 | 5.18% | 0.01% | 12.55 | 1.86 | -4.83 |
| 42. | Jun 30, 2022 | -12.11% | -8.39% | 189.01 | 95.29 | 134.21 |
| 43. | Jul 31, 2022 | 12.04% | 9.11% | 108.05 | 59.94 | 80.47 |
| 44. | Aug 31, 2022 | -8.94% | -4.24% | 112.05 | 31.52 | 59.43 |
| 45. | Sep 30, 2022 | -26.31% | -9.34% | 781.12 | 114.69 | 299.31 |
| 46. | Oct 31, 2022 | 15.73% | 7.99% | 198.59 | 43.78 | 93.24 |
| 47. | Nov 30, 2022 | 8.30% | 5.38% | 44.31 | 16.04 | 26.66 |
| 48. | Dec 31, 2022 | -2.44% | -5.90% | 16.62 | 52.81 | 29.63 |
| 49. | Jan 31, 2023 | 10.05% | 6.18% | 70.64 | 23.09 | 40.39 |
| 50. | Feb 28, 2023 | -12.53% | -2.61% | 200.73 | 15.85 | 56.40 |
| 51. | Mar 31, 2023 | 18.96% | 3.51% | 299.91 | 4.56 | 36.98 |
| 52. | Apr 30, 2023 | -2.03% | 1.46% | 13.46 | 0.01 | -0.35 |
| 53. | May 31, 2023 | 10.66% | 0.25% | 81.24 | 1.26 | -10.11 |
| 54. | Jun 30, 2023 | 17.04% | 4.71% | 237.17 | 11.18 | 51.50 |
| 55. | Jul 31, 2023 | 11.69% | 4.85% | 101.04 | 12.08 | 34.94 |
| 56. | Aug 31, 2023 | 2.41% | -1.77% | 0.59 | 9.87 | -2.42 |
| 57. | Sep 30, 2023 | -8.84% | -4.87% | 109.85 | 38.96 | 65.42 |
| 58. | Oct 31, 2023 | 4.35% | -2.20% | 7.31 | 12.73 | -9.65 |
| 59. | Nov 30, 2023 | 14.84% | 8.92% | 174.16 | 56.97 | 99.61 |
| 60. | Dec 31, 2023 | -2.36% | 4.42% | 16.00 | 9.32 | -12.21 |
| 61. | Jan 31, 2024 | 3.55% | 1.59% | 3.64 | 0.05 | 0.42 |
| 62. | Feb 29, 2024 | -9.31% | 5.17% | 119.89 | 14.46 | -41.63 |
| 63. | Mar 31, 2024 | -9.94% | 3.10% | 134.09 | 3.00 | -20.06 |
| 64. | Apr 30, 2024 | -8.28% | -4.16% | 98.40 | 30.60 | 54.87 |
| 65. | May 31, 2024 | -3.90% | 4.80% | 30.76 | 11.78 | -19.04 |
| 66. | Jun 30, 2024 | 24.91% | 3.47% | 541.31 | 4.40 | 48.79 |
| 67. | Jul 31, 2024 | -0.70% | 1.13% | 5.48 | 0.06 | 0.56 |
| 68. | Aug 31, 2024 | 4.13% | 2.28% | 6.17 | 0.83 | 2.27 |
| 69. | Sep 30, 2024 | -9.86% | 2.02% | 132.26 | 0.42 | -7.47 |
| 70. | Oct 31, 2024 | -7.67% | -0.99% | 86.66 | 5.57 | 21.97 |
| 71. | Nov 30, 2024 | 7.92% | 5.73% | 39.38 | 19.01 | 27.36 |
| Total (Σ): | 6,689.01 | 1,770.82 | 2,294.73 | |||
Show all
VarianceADBE = Σ(RADBE,t–RADBE)2 ÷ (71 – 1)
= 6,689.01 ÷ (71 – 1)
= 95.56
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)
= 1,770.82 ÷ (71 – 1)
= 25.30
CovarianceADBE, S&P 500 = Σ(RADBE,t–RADBE)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)
= 2,294.73 ÷ (71 – 1)
= 32.78
Systematic Risk (β) Estimation
| VarianceADBE | 95.56 |
| VarianceS&P 500 | 25.30 |
| CovarianceADBE, S&P 500 | 32.78 |
| Correlation coefficientADBE, S&P 5001 | 0.67 |
| βADBE2 | 1.30 |
| αADBE3 | -0.13% |
Calculations
1 Correlation coefficientADBE, S&P 500
= CovarianceADBE, S&P 500 ÷ (Standard deviationADBE × Standard deviationS&P 500)
= 32.78 ÷ (9.78% × 5.03%)
= 0.67
2 βADBE
= CovarianceADBE, S&P 500 ÷ VarianceS&P 500
= 32.78 ÷ 25.30
= 1.30
3 αADBE
= AverageADBE – βADBE × AverageS&P 500
= 1.64% – 1.30 × 1.37%
= -0.13%
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | 4.78% |
| Expected rate of return on market portfolio2 | E(RM) | 14.43% |
| Systematic risk (β) of Adobe Inc. common stock | βADBE | 1.30 |
| Expected rate of return on Adobe Inc. common stock3 | E(RADBE) | 17.28% |
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(RADBE) = RF + βADBE [E(RM) – RF]
= 4.78% + 1.30 [14.43% – 4.78%]
= 17.28%