Cisco Systems Inc. (NASDAQ:CSCO)

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 Cisco Systems Inc. common stock.

Rates of Return
Variance and Covariance
Systematic Risk (β) Estimation
Expected Rate of Return

Rates of Return

Cisco Systems Inc., monthly rates of return

		Cisco Systems Inc. (CSCO)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_CSCO,t¹	Dividend_CSCO,t¹	R_CSCO,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Aug 31, 2018	$47.77			2,901.52
1.	Sep 30, 2018	$48.65		1.84%	2,913.98	0.43%
2.	Oct 31, 2018	$45.75	$0.33	-5.28%	2,711.74	-6.94%
3.	Nov 30, 2018	$47.87		4.63%	2,760.17	1.79%
.	.	.	.	.	.	.
.	.	.	.	.	.	.
.	.	.	.	.	.	.
70.	Jun 30, 2024	$47.51		2.17%	5,460.48	3.47%
71.	Jul 31, 2024	$48.45	$0.40	2.82%	5,522.30	1.13%
Average (R):				0.54%		1.05%
Standard deviation:				7.35%		5.24%

		Cisco Systems Inc. (CSCO)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_CSCO,t¹	Dividend_CSCO,t¹	R_CSCO,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Aug 31, 2018	$47.77			2,901.52
1.	Sep 30, 2018	$48.65		1.84%	2,913.98	0.43%
2.	Oct 31, 2018	$45.75	$0.33	-5.28%	2,711.74	-6.94%
3.	Nov 30, 2018	$47.87		4.63%	2,760.17	1.79%
4.	Dec 31, 2018	$43.33		-9.48%	2,506.85	-9.18%
5.	Jan 31, 2019	$47.29	$0.33	9.90%	2,704.10	7.87%
6.	Feb 28, 2019	$51.77		9.47%	2,784.49	2.97%
7.	Mar 31, 2019	$53.99		4.29%	2,834.40	1.79%
8.	Apr 30, 2019	$55.95	$0.35	4.28%	2,945.83	3.93%
9.	May 31, 2019	$52.03		-7.01%	2,752.06	-6.58%
10.	Jun 30, 2019	$54.73		5.19%	2,941.76	6.89%
11.	Jul 31, 2019	$55.40	$0.35	1.86%	2,980.38	1.31%
12.	Aug 31, 2019	$46.81		-15.51%	2,926.46	-1.81%
13.	Sep 30, 2019	$49.41		5.55%	2,976.74	1.72%
14.	Oct 31, 2019	$47.51	$0.35	-3.14%	3,037.56	2.04%
15.	Nov 30, 2019	$45.31		-4.63%	3,140.98	3.40%
16.	Dec 31, 2019	$47.96		5.85%	3,230.78	2.86%
17.	Jan 31, 2020	$45.97	$0.35	-3.42%	3,225.52	-0.16%
18.	Feb 29, 2020	$39.93		-13.14%	2,954.22	-8.41%
19.	Mar 31, 2020	$39.31		-1.55%	2,584.59	-12.51%
20.	Apr 30, 2020	$42.38	$0.36	8.73%	2,912.43	12.68%
21.	May 31, 2020	$47.82		12.84%	3,044.31	4.53%
22.	Jun 30, 2020	$46.64		-2.47%	3,100.29	1.84%
23.	Jul 31, 2020	$47.10	$0.36	1.76%	3,271.12	5.51%
24.	Aug 31, 2020	$42.22		-10.36%	3,500.31	7.01%
25.	Sep 30, 2020	$39.39		-6.70%	3,363.00	-3.92%
26.	Oct 31, 2020	$35.90	$0.36	-7.95%	3,269.96	-2.77%
27.	Nov 30, 2020	$43.02		19.83%	3,621.63	10.75%
28.	Dec 31, 2020	$44.75		4.02%	3,756.07	3.71%
29.	Jan 31, 2021	$44.58	$0.36	0.42%	3,714.24	-1.11%
30.	Feb 28, 2021	$44.87		0.65%	3,811.15	2.61%
31.	Mar 31, 2021	$51.71		15.24%	3,972.89	4.24%
32.	Apr 30, 2021	$50.91	$0.37	-0.83%	4,181.17	5.24%
33.	May 31, 2021	$52.90		3.91%	4,204.11	0.55%
34.	Jun 30, 2021	$53.00		0.19%	4,297.50	2.22%
35.	Jul 31, 2021	$55.37	$0.37	5.17%	4,395.26	2.27%
36.	Aug 31, 2021	$59.02		6.59%	4,522.68	2.90%
37.	Sep 30, 2021	$54.43		-7.78%	4,307.54	-4.76%
38.	Oct 31, 2021	$55.97	$0.37	3.51%	4,605.38	6.91%
39.	Nov 30, 2021	$54.84		-2.02%	4,567.00	-0.83%
40.	Dec 31, 2021	$63.37		15.55%	4,766.18	4.36%
41.	Jan 31, 2022	$55.67	$0.37	-11.57%	4,515.55	-5.26%
42.	Feb 28, 2022	$55.77		0.18%	4,373.94	-3.14%
43.	Mar 31, 2022	$55.76		-0.02%	4,530.41	3.58%
44.	Apr 30, 2022	$48.98	$0.38	-11.48%	4,131.93	-8.80%
45.	May 31, 2022	$45.05		-8.02%	4,132.15	0.01%
46.	Jun 30, 2022	$42.64		-5.35%	3,785.38	-8.39%
47.	Jul 31, 2022	$45.37	$0.38	7.29%	4,130.29	9.11%
48.	Aug 31, 2022	$44.72		-1.43%	3,955.00	-4.24%
49.	Sep 30, 2022	$40.00		-10.55%	3,585.62	-9.34%
50.	Oct 31, 2022	$45.43	$0.38	14.53%	3,871.98	7.99%
51.	Nov 30, 2022	$49.72		9.44%	4,080.11	5.38%
52.	Dec 31, 2022	$47.64		-4.18%	3,839.50	-5.90%
53.	Jan 31, 2023	$48.67	$0.38	2.96%	4,076.60	6.18%
54.	Feb 28, 2023	$48.42		-0.51%	3,970.15	-2.61%
55.	Mar 31, 2023	$52.28		7.97%	4,109.31	3.51%
56.	Apr 30, 2023	$47.25	$0.39	-8.88%	4,169.48	1.46%
57.	May 31, 2023	$49.67		5.12%	4,179.83	0.25%
58.	Jun 30, 2023	$51.74		4.17%	4,376.86	4.71%
59.	Jul 31, 2023	$52.04	$0.39	1.33%	4,588.96	4.85%
60.	Aug 31, 2023	$57.35		10.20%	4,507.66	-1.77%
61.	Sep 30, 2023	$53.76		-6.26%	4,288.05	-4.87%
62.	Oct 31, 2023	$52.13	$0.39	-2.31%	4,193.80	-2.20%
63.	Nov 30, 2023	$48.38		-7.19%	4,567.80	8.92%
64.	Dec 31, 2023	$50.52		4.42%	4,769.83	4.42%
65.	Jan 31, 2024	$50.18	$0.39	0.10%	4,845.65	1.59%
66.	Feb 29, 2024	$48.37		-3.61%	5,096.27	5.17%
67.	Mar 31, 2024	$49.91		3.18%	5,254.35	3.10%
68.	Apr 30, 2024	$46.98	$0.40	-5.07%	5,035.69	-4.16%
69.	May 31, 2024	$46.50		-1.02%	5,277.51	4.80%
70.	Jun 30, 2024	$47.51		2.17%	5,460.48	3.47%
71.	Jul 31, 2024	$48.45	$0.40	2.82%	5,522.30	1.13%
Average (R):				0.54%		1.05%
Standard deviation:				7.35%		5.24%

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 CSCO during period t

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

Variance and Covariance

Cisco Systems Inc., calculation of variance and covariance of returns

t	Date	R_CSCO,t	R_{S&P 500,t}	(R_CSCO,t–R_CSCO)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_CSCO,t–R_CSCO)×(R_{S&P 500,t}–R_{S&P 500})
1.	Sep 30, 2018	1.84%	0.43%	1.69	0.38	-0.80
2.	Oct 31, 2018	-5.28%	-6.94%	33.92	63.79	46.52
3.	Nov 30, 2018	4.63%	1.79%	16.74	0.55	3.03
.	.	.	.	.	.	.
.	.	.	.	.	.	.
.	.	.	.	.	.	.
70.	Jun 30, 2024	2.17%	3.47%	2.66	5.86	3.95
71.	Jul 31, 2024	2.82%	1.13%	5.19	0.01	0.19
Total (Σ):				3,784.41	1,918.93	1,695.33

t	Date	R_CSCO,t	R_{S&P 500,t}	(R_CSCO,t–R_CSCO)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_CSCO,t–R_CSCO)×(R_{S&P 500,t}–R_{S&P 500})
1.	Sep 30, 2018	1.84%	0.43%	1.69	0.38	-0.80
2.	Oct 31, 2018	-5.28%	-6.94%	33.92	63.79	46.52
3.	Nov 30, 2018	4.63%	1.79%	16.74	0.55	3.03
4.	Dec 31, 2018	-9.48%	-9.18%	100.52	104.54	102.51
5.	Jan 31, 2019	9.90%	7.87%	87.59	46.54	63.84
6.	Feb 28, 2019	9.47%	2.97%	79.77	3.71	17.20
7.	Mar 31, 2019	4.29%	1.79%	14.04	0.56	2.79
8.	Apr 30, 2019	4.28%	3.93%	13.96	8.32	10.78
9.	May 31, 2019	-7.01%	-6.58%	56.97	58.13	57.55
10.	Jun 30, 2019	5.19%	6.89%	21.60	34.18	27.17
11.	Jul 31, 2019	1.86%	1.31%	1.75	0.07	0.35
12.	Aug 31, 2019	-15.51%	-1.81%	257.51	8.16	45.83
13.	Sep 30, 2019	5.55%	1.72%	25.13	0.45	3.37
14.	Oct 31, 2019	-3.14%	2.04%	13.53	0.99	-3.67
15.	Nov 30, 2019	-4.63%	3.40%	26.75	5.56	-12.20
16.	Dec 31, 2019	5.85%	2.86%	28.16	3.28	9.62
17.	Jan 31, 2020	-3.42%	-0.16%	15.69	1.46	4.79
18.	Feb 29, 2020	-13.14%	-8.41%	187.17	89.45	129.39
19.	Mar 31, 2020	-1.55%	-12.51%	4.39	183.84	28.40
20.	Apr 30, 2020	8.73%	12.68%	66.97	135.44	95.24
21.	May 31, 2020	12.84%	4.53%	151.15	12.12	42.80
22.	Jun 30, 2020	-2.47%	1.84%	9.06	0.63	-2.38
23.	Jul 31, 2020	1.76%	5.51%	1.48	19.92	5.43
24.	Aug 31, 2020	-10.36%	7.01%	118.87	35.52	-64.98
25.	Sep 30, 2020	-6.70%	-3.92%	52.49	24.70	36.00
26.	Oct 31, 2020	-7.95%	-2.77%	72.05	14.54	32.37
27.	Nov 30, 2020	19.83%	10.75%	372.14	94.24	187.28
28.	Dec 31, 2020	4.02%	3.71%	12.11	7.10	9.27
29.	Jan 31, 2021	0.42%	-1.11%	0.01	4.67	0.25
30.	Feb 28, 2021	0.65%	2.61%	0.01	2.44	0.17
31.	Mar 31, 2021	15.24%	4.24%	216.15	10.22	47.01
32.	Apr 30, 2021	-0.83%	5.24%	1.89	17.61	-5.76
33.	May 31, 2021	3.91%	0.55%	11.34	0.25	-1.68
34.	Jun 30, 2021	0.19%	2.22%	0.12	1.38	-0.41
35.	Jul 31, 2021	5.17%	2.27%	21.42	1.51	5.68
36.	Aug 31, 2021	6.59%	2.90%	36.60	3.43	11.21
37.	Sep 30, 2021	-7.78%	-4.76%	69.20	33.68	48.28
38.	Oct 31, 2021	3.51%	6.91%	8.80	34.43	17.41
39.	Nov 30, 2021	-2.02%	-0.83%	6.56	3.53	4.81
40.	Dec 31, 2021	15.55%	4.36%	225.37	10.99	49.76
41.	Jan 31, 2022	-11.57%	-5.26%	146.62	39.76	76.35
42.	Feb 28, 2022	0.18%	-3.14%	0.13	17.50	1.52
43.	Mar 31, 2022	-0.02%	3.58%	0.31	6.40	-1.42
44.	Apr 30, 2022	-11.48%	-8.80%	144.47	96.87	118.30
45.	May 31, 2022	-8.02%	0.01%	73.37	1.08	8.92
46.	Jun 30, 2022	-5.35%	-8.39%	34.71	89.09	55.61
47.	Jul 31, 2022	7.29%	9.11%	45.59	65.04	54.45
48.	Aug 31, 2022	-1.43%	-4.24%	3.90	27.99	10.45
49.	Sep 30, 2022	-10.55%	-9.34%	123.13	107.87	115.25
50.	Oct 31, 2022	14.53%	7.99%	195.53	48.16	97.04
51.	Nov 30, 2022	9.44%	5.38%	79.23	18.74	38.53
52.	Dec 31, 2022	-4.18%	-5.90%	22.33	48.22	32.81
53.	Jan 31, 2023	2.96%	6.18%	5.85	26.30	12.40
54.	Feb 28, 2023	-0.51%	-2.61%	1.11	13.38	3.86
55.	Mar 31, 2023	7.97%	3.51%	55.21	6.04	18.27
56.	Apr 30, 2023	-8.88%	1.46%	88.68	0.17	-3.93
57.	May 31, 2023	5.12%	0.25%	20.97	0.64	-3.66
58.	Jun 30, 2023	4.17%	4.71%	13.15	13.45	13.30
59.	Jul 31, 2023	1.33%	4.85%	0.63	14.43	3.01
60.	Aug 31, 2023	10.20%	-1.77%	93.35	7.94	-27.23
61.	Sep 30, 2023	-6.26%	-4.87%	46.26	35.03	40.26
62.	Oct 31, 2023	-2.31%	-2.20%	8.11	10.53	9.24
63.	Nov 30, 2023	-7.19%	8.92%	59.84	61.96	-60.89
64.	Dec 31, 2023	4.42%	4.42%	15.07	11.40	13.10
65.	Jan 31, 2024	0.10%	1.59%	0.20	0.29	-0.24
66.	Feb 29, 2024	-3.61%	5.17%	17.21	17.02	-17.12
67.	Mar 31, 2024	3.18%	3.10%	6.98	4.22	5.43
68.	Apr 30, 2024	-5.07%	-4.16%	31.48	27.13	29.22
69.	May 31, 2024	-1.02%	4.80%	2.44	14.10	-5.87
70.	Jun 30, 2024	2.17%	3.47%	2.66	5.86	3.95
71.	Jul 31, 2024	2.82%	1.13%	5.19	0.01	0.19
Total (Σ):				3,784.41	1,918.93	1,695.33

Show all

Variance_CSCO = Σ(R_CSCO,t–R_CSCO)² ÷ (71 – 1)
= 3,784.41 ÷ (71 – 1)
= 54.06

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (71 – 1)
= 1,918.93 ÷ (71 – 1)
= 27.41

Covariance_{CSCO, S&P 500} = Σ(R_CSCO,t–R_CSCO)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (71 – 1)
= 1,695.33 ÷ (71 – 1)
= 24.22

Systematic Risk (β) Estimation

Variance_CSCO	54.06
Variance_{S&P 500}	27.41
Covariance_{CSCO, S&P 500}	24.22
Correlation coefficient_{CSCO, S&P 500}¹	0.63
β_CSCO²	0.88
α_CSCO³	-0.38%

Calculations

¹ Correlation coefficient_{CSCO, S&P 500}
= Covariance_{CSCO, S&P 500} ÷ (Standard deviation_CSCO × Standard deviation_{S&P 500})
= 24.22 ÷ (7.35% × 5.24%)
= 0.63

² β_CSCO
= Covariance_{CSCO, S&P 500} ÷ Variance_{S&P 500}
= 24.22 ÷ 27.41
= 0.88

³ α_CSCO
= Average_CSCO – β_CSCO × Average_{S&P 500}
= 0.54% – 0.88 × 1.05%
= -0.38%

Expected Rate of Return

Assumptions
Rate of return on LT Treasury Composite¹	R_F	4.67%
Expected rate of return on market portfolio²	E(R_M)	13.79%
Systematic risk (β) of Cisco Systems Inc. common stock	β_CSCO	0.88

Expected rate of return on Cisco Systems Inc. common stock³	E(R_CSCO)	12.72%

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(R_CSCO) = R_F + β_CSCO [E(R_M) – R_F]
= 4.67% + 0.88 [13.79% – 4.67%]
= 12.72%