Costco Wholesale Corp. (NASDAQ:COST)

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 Costco Wholesale Corp. common stock.

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

Rates of Return

Costco Wholesale Corp., monthly rates of return

		Costco Wholesale Corp. (COST)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_COST,t¹	Dividend_COST,t¹	R_COST,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Sep 30, 2018	$234.88			2,913.98
1.	Oct 31, 2018	$228.63		-2.66%	2,711.74	-6.94%
2.	Nov 30, 2018	$231.28	$0.57	1.41%	2,760.17	1.79%
3.	Dec 31, 2018	$203.71		-11.92%	2,506.85	-9.18%
.	.	.	.	.	.	.
.	.	.	.	.	.	.
.	.	.	.	.	.	.
70.	Jul 31, 2024	$822.00	$1.16	-3.16%	5,522.30	1.13%
71.	Aug 31, 2024	$892.38		8.56%	5,648.40	2.28%
Average (R):				2.20%		1.07%
Standard deviation:				6.36%		5.24%

		Costco Wholesale Corp. (COST)			Standard & Poor’s 500 (S&P 500)
t	Date	Price_COST,t¹	Dividend_COST,t¹	R_COST,t²	Price_{S&P 500,t}	R_{S&P 500,t}³
	Sep 30, 2018	$234.88			2,913.98
1.	Oct 31, 2018	$228.63		-2.66%	2,711.74	-6.94%
2.	Nov 30, 2018	$231.28	$0.57	1.41%	2,760.17	1.79%
3.	Dec 31, 2018	$203.71		-11.92%	2,506.85	-9.18%
4.	Jan 31, 2019	$214.63		5.36%	2,704.10	7.87%
5.	Feb 28, 2019	$218.74	$0.57	2.18%	2,784.49	2.97%
6.	Mar 31, 2019	$242.14		10.70%	2,834.40	1.79%
7.	Apr 30, 2019	$245.53		1.40%	2,945.83	3.93%
8.	May 31, 2019	$239.58	$0.65	-2.16%	2,752.06	-6.58%
9.	Jun 30, 2019	$264.26		10.30%	2,941.76	6.89%
10.	Jul 31, 2019	$275.63		4.30%	2,980.38	1.31%
11.	Aug 31, 2019	$294.76	$0.65	7.18%	2,926.46	-1.81%
12.	Sep 30, 2019	$288.11		-2.26%	2,976.74	1.72%
13.	Oct 31, 2019	$297.11	$0.65	3.35%	3,037.56	2.04%
14.	Nov 30, 2019	$299.81		0.91%	3,140.98	3.40%
15.	Dec 31, 2019	$293.92		-1.96%	3,230.78	2.86%
16.	Jan 31, 2020	$305.52		3.95%	3,225.52	-0.16%
17.	Feb 29, 2020	$281.14	$0.65	-7.77%	2,954.22	-8.41%
18.	Mar 31, 2020	$285.13		1.42%	2,584.59	-12.51%
19.	Apr 30, 2020	$303.00	$0.70	6.51%	2,912.43	12.68%
20.	May 31, 2020	$308.47		1.81%	3,044.31	4.53%
21.	Jun 30, 2020	$303.21		-1.71%	3,100.29	1.84%
22.	Jul 31, 2020	$325.53	$0.70	7.59%	3,271.12	5.51%
23.	Aug 31, 2020	$347.66		6.80%	3,500.31	7.01%
24.	Sep 30, 2020	$355.00		2.11%	3,363.00	-3.92%
25.	Oct 31, 2020	$357.62	$0.70	0.94%	3,269.96	-2.77%
26.	Nov 30, 2020	$391.77		9.55%	3,621.63	10.75%
27.	Dec 31, 2020	$376.78	$10.00	-1.27%	3,756.07	3.71%
28.	Jan 31, 2021	$352.43		-6.46%	3,714.24	-1.11%
29.	Feb 28, 2021	$331.00	$0.70	-5.88%	3,811.15	2.61%
30.	Mar 31, 2021	$352.48		6.49%	3,972.89	4.24%
31.	Apr 30, 2021	$372.09	$0.79	5.79%	4,181.17	5.24%
32.	May 31, 2021	$378.27		1.66%	4,204.11	0.55%
33.	Jun 30, 2021	$395.67		4.60%	4,297.50	2.22%
34.	Jul 31, 2021	$429.72	$0.79	8.81%	4,395.26	2.27%
35.	Aug 31, 2021	$455.49		6.00%	4,522.68	2.90%
36.	Sep 30, 2021	$449.35		-1.35%	4,307.54	-4.76%
37.	Oct 31, 2021	$491.54	$0.79	9.56%	4,605.38	6.91%
38.	Nov 30, 2021	$539.38		9.73%	4,567.00	-0.83%
39.	Dec 31, 2021	$567.70		5.25%	4,766.18	4.36%
40.	Jan 31, 2022	$505.13		-11.02%	4,515.55	-5.26%
41.	Feb 28, 2022	$519.25	$0.79	2.95%	4,373.94	-3.14%
42.	Mar 31, 2022	$575.85		10.90%	4,530.41	3.58%
43.	Apr 30, 2022	$531.72	$0.90	-7.51%	4,131.93	-8.80%
44.	May 31, 2022	$466.22		-12.32%	4,132.15	0.01%
45.	Jun 30, 2022	$479.28		2.80%	3,785.38	-8.39%
46.	Jul 31, 2022	$541.30	$0.90	13.13%	4,130.29	9.11%
47.	Aug 31, 2022	$522.10		-3.55%	3,955.00	-4.24%
48.	Sep 30, 2022	$472.27		-9.54%	3,585.62	-9.34%
49.	Oct 31, 2022	$501.50	$0.90	6.38%	3,871.98	7.99%
50.	Nov 30, 2022	$539.25		7.53%	4,080.11	5.38%
51.	Dec 31, 2022	$456.50		-15.35%	3,839.50	-5.90%
52.	Jan 31, 2023	$511.14		11.97%	4,076.60	6.18%
53.	Feb 28, 2023	$484.18	$0.90	-5.10%	3,970.15	-2.61%
54.	Mar 31, 2023	$496.87		2.62%	4,109.31	3.51%
55.	Apr 30, 2023	$503.22		1.28%	4,169.48	1.46%
56.	May 31, 2023	$511.56	$1.02	1.86%	4,179.83	0.25%
57.	Jun 30, 2023	$538.38		5.24%	4,376.86	4.71%
58.	Jul 31, 2023	$560.67		4.14%	4,588.96	4.85%
59.	Aug 31, 2023	$549.28	$1.02	-1.85%	4,507.66	-1.77%
60.	Sep 30, 2023	$564.96		2.85%	4,288.05	-4.87%
61.	Oct 31, 2023	$552.44		-2.22%	4,193.80	-2.20%
62.	Nov 30, 2023	$592.74	$1.02	7.48%	4,567.80	8.92%
63.	Dec 31, 2023	$660.08		11.36%	4,769.83	4.42%
64.	Jan 31, 2024	$694.88		5.27%	4,845.65	1.59%
65.	Feb 29, 2024	$743.89	$1.02	7.20%	5,096.27	5.17%
66.	Mar 31, 2024	$732.63		-1.51%	5,254.35	3.10%
67.	Apr 30, 2024	$722.90	$1.16	-1.17%	5,035.69	-4.16%
68.	May 31, 2024	$809.89		12.03%	5,277.51	4.80%
69.	Jun 30, 2024	$849.99		4.95%	5,460.48	3.47%
70.	Jul 31, 2024	$822.00	$1.16	-3.16%	5,522.30	1.13%
71.	Aug 31, 2024	$892.38		8.56%	5,648.40	2.28%
Average (R):				2.20%		1.07%
Standard deviation:				6.36%		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 COST during period t

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

Variance and Covariance

Costco Wholesale Corp., calculation of variance and covariance of returns

t	Date	R_COST,t	R_{S&P 500,t}	(R_COST,t–R_COST)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_COST,t–R_COST)×(R_{S&P 500,t}–R_{S&P 500})
1.	Oct 31, 2018	-2.66%	-6.94%	23.67	64.21	38.98
2.	Nov 30, 2018	1.41%	1.79%	0.63	0.51	-0.57
3.	Dec 31, 2018	-11.92%	-9.18%	199.50	105.07	144.78
.	.	.	.	.	.	.
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70.	Jul 31, 2024	-3.16%	1.13%	28.73	0.00	-0.32
71.	Aug 31, 2024	8.56%	2.28%	40.43	1.47	7.70
Total (Σ):				2,828.54	1,920.03	1,538.25

t	Date	R_COST,t	R_{S&P 500,t}	(R_COST,t–R_COST)²	(R_{S&P 500,t}–R_{S&P 500})²	(R_COST,t–R_COST)×(R_{S&P 500,t}–R_{S&P 500})
1.	Oct 31, 2018	-2.66%	-6.94%	23.67	64.21	38.98
2.	Nov 30, 2018	1.41%	1.79%	0.63	0.51	-0.57
3.	Dec 31, 2018	-11.92%	-9.18%	199.50	105.07	144.78
4.	Jan 31, 2019	5.36%	7.87%	9.97	46.18	21.45
5.	Feb 28, 2019	2.18%	2.97%	0.00	3.61	-0.04
6.	Mar 31, 2019	10.70%	1.79%	72.15	0.52	6.11
7.	Apr 30, 2019	1.40%	3.93%	0.65	8.17	-2.30
8.	May 31, 2019	-2.16%	-6.58%	19.03	58.53	33.37
9.	Jun 30, 2019	10.30%	6.89%	65.57	33.88	47.13
10.	Jul 31, 2019	4.30%	1.31%	4.40	0.06	0.50
11.	Aug 31, 2019	7.18%	-1.81%	24.73	8.31	-14.33
12.	Sep 30, 2019	-2.26%	1.72%	19.89	0.42	-2.88
13.	Oct 31, 2019	3.35%	2.04%	1.31	0.94	1.11
14.	Nov 30, 2019	0.91%	3.40%	1.68	5.44	-3.02
15.	Dec 31, 2019	-1.96%	2.86%	17.38	3.19	-7.45
16.	Jan 31, 2020	3.95%	-0.16%	3.04	1.53	-2.15
17.	Feb 29, 2020	-7.77%	-8.41%	99.42	89.94	94.56
18.	Mar 31, 2020	1.42%	-12.51%	0.62	184.54	10.66
19.	Apr 30, 2020	6.51%	12.68%	18.57	134.83	50.03
20.	May 31, 2020	1.81%	4.53%	0.16	11.94	-1.38
21.	Jun 30, 2020	-1.71%	1.84%	15.28	0.59	-2.99
22.	Jul 31, 2020	7.59%	5.51%	29.03	19.69	23.91
23.	Aug 31, 2020	6.80%	7.01%	21.11	35.21	27.26
24.	Sep 30, 2020	2.11%	-3.92%	0.01	24.96	0.46
25.	Oct 31, 2020	0.94%	-2.77%	1.61	14.74	4.87
26.	Nov 30, 2020	9.55%	10.75%	53.96	93.74	71.12
27.	Dec 31, 2020	-1.27%	3.71%	12.09	6.97	-9.18
28.	Jan 31, 2021	-6.46%	-1.11%	75.11	4.78	18.95
29.	Feb 28, 2021	-5.88%	2.61%	65.38	2.36	-12.42
30.	Mar 31, 2021	6.49%	4.24%	18.37	10.06	13.59
31.	Apr 30, 2021	5.79%	5.24%	12.84	17.39	14.94
32.	May 31, 2021	1.66%	0.55%	0.29	0.27	0.28
33.	Jun 30, 2021	4.60%	2.22%	5.74	1.32	2.75
34.	Jul 31, 2021	8.81%	2.27%	43.58	1.44	7.94
35.	Aug 31, 2021	6.00%	2.90%	14.39	3.34	6.93
36.	Sep 30, 2021	-1.35%	-4.76%	12.62	33.99	20.71
37.	Oct 31, 2021	9.56%	6.91%	54.19	34.12	43.00
38.	Nov 30, 2021	9.73%	-0.83%	56.68	3.63	-14.35
39.	Dec 31, 2021	5.25%	4.36%	9.28	10.81	10.02
40.	Jan 31, 2022	-11.02%	-5.26%	174.91	40.09	83.73
41.	Feb 28, 2022	2.95%	-3.14%	0.56	17.71	-3.15
42.	Mar 31, 2022	10.90%	3.58%	75.63	6.27	21.78
43.	Apr 30, 2022	-7.51%	-8.80%	94.30	97.39	95.83
44.	May 31, 2022	-12.32%	0.01%	210.90	1.14	15.50
45.	Jun 30, 2022	2.80%	-8.39%	0.36	89.58	-5.65
46.	Jul 31, 2022	13.13%	9.11%	119.34	64.62	87.82
47.	Aug 31, 2022	-3.55%	-4.24%	33.07	28.27	30.58
48.	Sep 30, 2022	-9.54%	-9.34%	138.01	108.42	122.32
49.	Oct 31, 2022	6.38%	7.99%	17.44	47.80	28.87
50.	Nov 30, 2022	7.53%	5.38%	28.34	18.51	22.90
51.	Dec 31, 2022	-15.35%	-5.90%	307.97	48.58	122.32
52.	Jan 31, 2023	11.97%	6.18%	95.37	26.04	49.83
53.	Feb 28, 2023	-5.10%	-2.61%	53.32	13.57	26.90
54.	Mar 31, 2023	2.62%	3.51%	0.17	5.92	1.01
55.	Apr 30, 2023	1.28%	1.46%	0.86	0.15	-0.36
56.	May 31, 2023	1.86%	0.25%	0.12	0.68	0.28
57.	Jun 30, 2023	5.24%	4.71%	9.24	13.26	11.07
58.	Jul 31, 2023	4.14%	4.85%	3.75	14.24	7.31
59.	Aug 31, 2023	-1.85%	-1.77%	16.43	8.09	11.53
60.	Sep 30, 2023	2.85%	-4.87%	0.42	35.34	-3.87
61.	Oct 31, 2023	-2.22%	-2.20%	19.54	10.70	14.46
62.	Nov 30, 2023	7.48%	8.92%	27.83	61.55	41.39
63.	Dec 31, 2023	11.36%	4.42%	83.85	11.22	30.68
64.	Jan 31, 2024	5.27%	1.59%	9.41	0.27	1.59
65.	Feb 29, 2024	7.20%	5.17%	24.96	16.80	20.48
66.	Mar 31, 2024	-1.51%	3.10%	13.82	4.12	-7.54
67.	Apr 30, 2024	-1.17%	-4.16%	11.38	27.40	17.66
68.	May 31, 2024	12.03%	4.80%	96.62	13.91	36.66
69.	Jun 30, 2024	4.95%	3.47%	7.55	5.73	6.58
70.	Jul 31, 2024	-3.16%	1.13%	28.73	0.00	-0.32
71.	Aug 31, 2024	8.56%	2.28%	40.43	1.47	7.70
Total (Σ):				2,828.54	1,920.03	1,538.25

Show all

Variance_COST = Σ(R_COST,t–R_COST)² ÷ (71 – 1)
= 2,828.54 ÷ (71 – 1)
= 40.41

Variance_{S&P 500} = Σ(R_{S&P 500,t}–R_{S&P 500})² ÷ (71 – 1)
= 1,920.03 ÷ (71 – 1)
= 27.43

Covariance_{COST, S&P 500} = Σ(R_COST,t–R_COST)×(R_{S&P 500,t}–R_{S&P 500}) ÷ (71 – 1)
= 1,538.25 ÷ (71 – 1)
= 21.97

Systematic Risk (β) Estimation

Variance_COST	40.41
Variance_{S&P 500}	27.43
Covariance_{COST, S&P 500}	21.97
Correlation coefficient_{COST, S&P 500}¹	0.66
β_COST²	0.80
α_COST³	1.34%

Calculations

¹ Correlation coefficient_{COST, S&P 500}
= Covariance_{COST, S&P 500} ÷ (Standard deviation_COST × Standard deviation_{S&P 500})
= 21.97 ÷ (6.36% × 5.24%)
= 0.66

² β_COST
= Covariance_{COST, S&P 500} ÷ Variance_{S&P 500}
= 21.97 ÷ 27.43
= 0.80

³ α_COST
= Average_COST – β_COST × Average_{S&P 500}
= 2.20% – 0.80 × 1.07%
= 1.34%

Expected Rate of Return

Assumptions
Rate of return on LT Treasury Composite¹	R_F	4.65%
Expected rate of return on market portfolio²	E(R_M)	13.79%
Systematic risk (β) of Costco Wholesale Corp. common stock	β_COST	0.80

Expected rate of return on Costco Wholesale Corp. common stock³	E(R_COST)	11.97%

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_COST) = R_F + β_COST [E(R_M) – R_F]
= 4.65% + 0.80 [13.79% – 4.65%]
= 11.97%