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 Cytokinetics Inc. common stock.
Rates of Return
Cytokinetics Inc., monthly rates of return
| Cytokinetics Inc. (CYTK) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceCYTK,t1 | DividendCYTK,t1 | RCYTK,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2018 | $9.20 | 2,823.81 | ||||
| 1. | Feb 28, 2018 | $7.75 | -15.76% | 2,713.83 | -3.89% | |
| 2. | Mar 31, 2018 | $7.20 | -7.10% | 2,640.87 | -2.69% | |
| 3. | Apr 30, 2018 | $8.30 | 15.28% | 2,648.05 | 0.27% | |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 58. | Nov 30, 2022 | $42.50 | -2.66% | 4,080.11 | 5.38% | |
| 59. | Dec 31, 2022 | $45.82 | 7.81% | 3,839.50 | -5.90% | |
| Average (R): | 3.99% | 0.67% | ||||
| Standard deviation: | 15.94% | 5.40% | ||||
| Cytokinetics Inc. (CYTK) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceCYTK,t1 | DividendCYTK,t1 | RCYTK,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2018 | $9.20 | 2,823.81 | ||||
| 1. | Feb 28, 2018 | $7.75 | -15.76% | 2,713.83 | -3.89% | |
| 2. | Mar 31, 2018 | $7.20 | -7.10% | 2,640.87 | -2.69% | |
| 3. | Apr 30, 2018 | $8.30 | 15.28% | 2,648.05 | 0.27% | |
| 4. | May 31, 2018 | $9.00 | 8.43% | 2,705.27 | 2.16% | |
| 5. | Jun 30, 2018 | $8.30 | -7.78% | 2,718.37 | 0.48% | |
| 6. | Jul 31, 2018 | $7.35 | -11.45% | 2,816.29 | 3.60% | |
| 7. | Aug 31, 2018 | $7.90 | 7.48% | 2,901.52 | 3.03% | |
| 8. | Sep 30, 2018 | $9.85 | 24.68% | 2,913.98 | 0.43% | |
| 9. | Oct 31, 2018 | $6.69 | -32.08% | 2,711.74 | -6.94% | |
| 10. | Nov 30, 2018 | $7.86 | 17.49% | 2,760.17 | 1.79% | |
| 11. | Dec 31, 2018 | $6.32 | -19.59% | 2,506.85 | -9.18% | |
| 12. | Jan 31, 2019 | $7.03 | 11.23% | 2,704.10 | 7.87% | |
| 13. | Feb 28, 2019 | $7.22 | 2.70% | 2,784.49 | 2.97% | |
| 14. | Mar 31, 2019 | $8.09 | 12.05% | 2,834.40 | 1.79% | |
| 15. | Apr 30, 2019 | $8.82 | 9.02% | 2,945.83 | 3.93% | |
| 16. | May 31, 2019 | $10.37 | 17.57% | 2,752.06 | -6.58% | |
| 17. | Jun 30, 2019 | $11.25 | 8.49% | 2,941.76 | 6.89% | |
| 18. | Jul 31, 2019 | $12.19 | 8.36% | 2,980.38 | 1.31% | |
| 19. | Aug 31, 2019 | $14.05 | 15.26% | 2,926.46 | -1.81% | |
| 20. | Sep 30, 2019 | $11.38 | -19.00% | 2,976.74 | 1.72% | |
| 21. | Oct 31, 2019 | $11.65 | 2.37% | 3,037.56 | 2.04% | |
| 22. | Nov 30, 2019 | $9.67 | -17.00% | 3,140.98 | 3.40% | |
| 23. | Dec 31, 2019 | $10.61 | 9.72% | 3,230.78 | 2.86% | |
| 24. | Jan 31, 2020 | $12.30 | 15.93% | 3,225.52 | -0.16% | |
| 25. | Feb 29, 2020 | $13.94 | 13.33% | 2,954.22 | -8.41% | |
| 26. | Mar 31, 2020 | $11.79 | -15.42% | 2,584.59 | -12.51% | |
| 27. | Apr 30, 2020 | $15.11 | 28.16% | 2,912.43 | 12.68% | |
| 28. | May 31, 2020 | $20.71 | 37.06% | 3,044.31 | 4.53% | |
| 29. | Jun 30, 2020 | $23.57 | 13.81% | 3,100.29 | 1.84% | |
| 30. | Jul 31, 2020 | $21.62 | -8.27% | 3,271.12 | 5.51% | |
| 31. | Aug 31, 2020 | $23.96 | 10.82% | 3,500.31 | 7.01% | |
| 32. | Sep 30, 2020 | $21.65 | -9.64% | 3,363.00 | -3.92% | |
| 33. | Oct 31, 2020 | $15.37 | -29.01% | 3,269.96 | -2.77% | |
| 34. | Nov 30, 2020 | $16.80 | 9.30% | 3,621.63 | 10.75% | |
| 35. | Dec 31, 2020 | $20.78 | 23.69% | 3,756.07 | 3.71% | |
| 36. | Jan 31, 2021 | $19.67 | -5.34% | 3,714.24 | -1.11% | |
| 37. | Feb 28, 2021 | $18.73 | -4.78% | 3,811.15 | 2.61% | |
| 38. | Mar 31, 2021 | $23.26 | 24.19% | 3,972.89 | 4.24% | |
| 39. | Apr 30, 2021 | $25.44 | 9.37% | 4,181.17 | 5.24% | |
| 40. | May 31, 2021 | $21.83 | -14.19% | 4,204.11 | 0.55% | |
| 41. | Jun 30, 2021 | $19.79 | -9.34% | 4,297.50 | 2.22% | |
| 42. | Jul 31, 2021 | $29.68 | 49.97% | 4,395.26 | 2.27% | |
| 43. | Aug 31, 2021 | $32.97 | 11.08% | 4,522.68 | 2.90% | |
| 44. | Sep 30, 2021 | $35.74 | 8.40% | 4,307.54 | -4.76% | |
| 45. | Oct 31, 2021 | $34.91 | -2.32% | 4,605.38 | 6.91% | |
| 46. | Nov 30, 2021 | $39.34 | 12.69% | 4,567.00 | -0.83% | |
| 47. | Dec 31, 2021 | $45.58 | 15.86% | 4,766.18 | 4.36% | |
| 48. | Jan 31, 2022 | $33.19 | -27.18% | 4,515.55 | -5.26% | |
| 49. | Feb 28, 2022 | $35.32 | 6.42% | 4,373.94 | -3.14% | |
| 50. | Mar 31, 2022 | $36.81 | 4.22% | 4,530.41 | 3.58% | |
| 51. | Apr 30, 2022 | $39.87 | 8.31% | 4,131.93 | -8.80% | |
| 52. | May 31, 2022 | $39.90 | 0.08% | 4,132.15 | 0.01% | |
| 53. | Jun 30, 2022 | $39.29 | -1.53% | 3,785.38 | -8.39% | |
| 54. | Jul 31, 2022 | $42.33 | 7.74% | 4,130.29 | 9.11% | |
| 55. | Aug 31, 2022 | $52.96 | 25.11% | 3,955.00 | -4.24% | |
| 56. | Sep 30, 2022 | $48.45 | -8.52% | 3,585.62 | -9.34% | |
| 57. | Oct 31, 2022 | $43.66 | -9.89% | 3,871.98 | 7.99% | |
| 58. | Nov 30, 2022 | $42.50 | -2.66% | 4,080.11 | 5.38% | |
| 59. | Dec 31, 2022 | $45.82 | 7.81% | 3,839.50 | -5.90% | |
| Average (R): | 3.99% | 0.67% | ||||
| Standard deviation: | 15.94% | 5.40% | ||||
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of CYTK during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Cytokinetics Inc., calculation of variance and covariance of returns
| t | Date | RCYTK,t | RS&P 500,t | (RCYTK,t–RCYTK)2 | (RS&P 500,t–RS&P 500)2 | (RCYTK,t–RCYTK)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Feb 28, 2018 | -15.76% | -3.89% | 390.27 | 20.81 | 90.11 |
| 2. | Mar 31, 2018 | -7.10% | -2.69% | 123.01 | 11.26 | 37.21 |
| 3. | Apr 30, 2018 | 15.28% | 0.27% | 127.32 | 0.16 | -4.45 |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 58. | Nov 30, 2022 | -2.66% | 5.38% | 44.24 | 22.17 | -31.32 |
| 59. | Dec 31, 2022 | 7.81% | -5.90% | 14.57 | 43.08 | -25.06 |
| Total (Σ): | 14,745.77 | 1,691.48 | 1,601.42 | |||
| t | Date | RCYTK,t | RS&P 500,t | (RCYTK,t–RCYTK)2 | (RS&P 500,t–RS&P 500)2 | (RCYTK,t–RCYTK)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Feb 28, 2018 | -15.76% | -3.89% | 390.27 | 20.81 | 90.11 |
| 2. | Mar 31, 2018 | -7.10% | -2.69% | 123.01 | 11.26 | 37.21 |
| 3. | Apr 30, 2018 | 15.28% | 0.27% | 127.32 | 0.16 | -4.45 |
| 4. | May 31, 2018 | 8.43% | 2.16% | 19.71 | 2.23 | 6.63 |
| 5. | Jun 30, 2018 | -7.78% | 0.48% | 138.58 | 0.03 | 2.15 |
| 6. | Jul 31, 2018 | -11.45% | 3.60% | 238.40 | 8.62 | -45.32 |
| 7. | Aug 31, 2018 | 7.48% | 3.03% | 12.17 | 5.57 | 8.23 |
| 8. | Sep 30, 2018 | 24.68% | 0.43% | 428.05 | 0.06 | -4.91 |
| 9. | Oct 31, 2018 | -32.08% | -6.94% | 1,301.44 | 57.87 | 274.43 |
| 10. | Nov 30, 2018 | 17.49% | 1.79% | 182.10 | 1.25 | 15.10 |
| 11. | Dec 31, 2018 | -19.59% | -9.18% | 556.35 | 96.91 | 232.20 |
| 12. | Jan 31, 2019 | 11.23% | 7.87% | 52.42 | 51.87 | 52.14 |
| 13. | Feb 28, 2019 | 2.70% | 2.97% | 1.67 | 5.32 | -2.98 |
| 14. | Mar 31, 2019 | 12.05% | 1.79% | 64.89 | 1.27 | 9.07 |
| 15. | Apr 30, 2019 | 9.02% | 3.93% | 25.29 | 10.66 | 16.42 |
| 16. | May 31, 2019 | 17.57% | -6.58% | 184.40 | 52.48 | -98.37 |
| 17. | Jun 30, 2019 | 8.49% | 6.89% | 20.18 | 38.77 | 27.97 |
| 18. | Jul 31, 2019 | 8.36% | 1.31% | 19.02 | 0.42 | 2.82 |
| 19. | Aug 31, 2019 | 15.26% | -1.81% | 126.88 | 6.13 | -27.89 |
| 20. | Sep 30, 2019 | -19.00% | 1.72% | 528.90 | 1.11 | -24.18 |
| 21. | Oct 31, 2019 | 2.37% | 2.04% | 2.63 | 1.89 | -2.23 |
| 22. | Nov 30, 2019 | -17.00% | 3.40% | 440.58 | 7.50 | -57.47 |
| 23. | Dec 31, 2019 | 9.72% | 2.86% | 32.79 | 4.81 | 12.55 |
| 24. | Jan 31, 2020 | 15.93% | -0.16% | 142.42 | 0.69 | -9.90 |
| 25. | Feb 29, 2020 | 13.33% | -8.41% | 87.22 | 82.40 | -84.78 |
| 26. | Mar 31, 2020 | -15.42% | -12.51% | 377.04 | 173.67 | 255.90 |
| 27. | Apr 30, 2020 | 28.16% | 12.68% | 583.96 | 144.43 | 290.41 |
| 28. | May 31, 2020 | 37.06% | 4.53% | 1,093.44 | 14.91 | 127.69 |
| 29. | Jun 30, 2020 | 13.81% | 1.84% | 96.34 | 1.37 | 11.51 |
| 30. | Jul 31, 2020 | -8.27% | 5.51% | 150.49 | 23.46 | -59.42 |
| 31. | Aug 31, 2020 | 10.82% | 7.01% | 46.64 | 40.19 | 43.29 |
| 32. | Sep 30, 2020 | -9.64% | -3.92% | 185.92 | 21.06 | 62.58 |
| 33. | Oct 31, 2020 | -29.01% | -2.77% | 1,089.08 | 11.79 | 113.30 |
| 34. | Nov 30, 2020 | 9.30% | 10.75% | 28.19 | 101.77 | 53.56 |
| 35. | Dec 31, 2020 | 23.69% | 3.71% | 387.94 | 9.28 | 59.98 |
| 36. | Jan 31, 2021 | -5.34% | -1.11% | 87.16 | 3.17 | 16.62 |
| 37. | Feb 28, 2021 | -4.78% | 2.61% | 76.97 | 3.77 | -17.04 |
| 38. | Mar 31, 2021 | 24.19% | 4.24% | 407.70 | 12.80 | 72.23 |
| 39. | Apr 30, 2021 | 9.37% | 5.24% | 28.92 | 20.94 | 24.61 |
| 40. | May 31, 2021 | -14.19% | 0.55% | 330.68 | 0.01 | 2.15 |
| 41. | Jun 30, 2021 | -9.34% | 2.22% | 177.93 | 2.42 | -20.74 |
| 42. | Jul 31, 2021 | 49.97% | 2.27% | 2,114.20 | 2.59 | 73.94 |
| 43. | Aug 31, 2021 | 11.08% | 2.90% | 50.28 | 4.98 | 15.83 |
| 44. | Sep 30, 2021 | 8.40% | -4.76% | 19.42 | 29.42 | -23.90 |
| 45. | Oct 31, 2021 | -2.32% | 6.91% | 39.90 | 39.03 | -39.46 |
| 46. | Nov 30, 2021 | 12.69% | -0.83% | 75.61 | 2.25 | -13.04 |
| 47. | Dec 31, 2021 | 15.86% | 4.36% | 140.84 | 13.65 | 43.85 |
| 48. | Jan 31, 2022 | -27.18% | -5.26% | 972.02 | 35.11 | 184.73 |
| 49. | Feb 28, 2022 | 6.42% | -3.14% | 5.87 | 14.46 | -9.22 |
| 50. | Mar 31, 2022 | 4.22% | 3.58% | 0.05 | 8.47 | 0.65 |
| 51. | Apr 30, 2022 | 8.31% | -8.80% | 18.65 | 89.54 | -40.86 |
| 52. | May 31, 2022 | 0.08% | 0.01% | 15.36 | 0.44 | 2.59 |
| 53. | Jun 30, 2022 | -1.53% | -8.39% | 30.50 | 82.06 | 50.03 |
| 54. | Jul 31, 2022 | 7.74% | 9.11% | 14.01 | 71.32 | 31.61 |
| 55. | Aug 31, 2022 | 25.11% | -4.24% | 445.97 | 24.11 | -103.70 |
| 56. | Sep 30, 2022 | -8.52% | -9.34% | 156.50 | 100.12 | 125.18 |
| 57. | Oct 31, 2022 | -9.89% | 7.99% | 192.68 | 53.58 | -101.60 |
| 58. | Nov 30, 2022 | -2.66% | 5.38% | 44.24 | 22.17 | -31.32 |
| 59. | Dec 31, 2022 | 7.81% | -5.90% | 14.57 | 43.08 | -25.06 |
| Total (Σ): | 14,745.77 | 1,691.48 | 1,601.42 | |||
Show all
VarianceCYTK = Σ(RCYTK,t–RCYTK)2 ÷ (59 – 1)
= 14,745.77 ÷ (59 – 1)
= 254.24
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (59 – 1)
= 1,691.48 ÷ (59 – 1)
= 29.16
CovarianceCYTK, S&P 500 = Σ(RCYTK,t–RCYTK)×(RS&P 500,t–RS&P 500) ÷ (59 – 1)
= 1,601.42 ÷ (59 – 1)
= 27.61
Systematic Risk (β) Estimation
| VarianceCYTK | 254.24 |
| VarianceS&P 500 | 29.16 |
| CovarianceCYTK, S&P 500 | 27.61 |
| Correlation coefficientCYTK, S&P 5001 | 0.32 |
| βCYTK2 | 0.95 |
| αCYTK3 | 3.36% |
Calculations
1 Correlation coefficientCYTK, S&P 500
= CovarianceCYTK, S&P 500 ÷ (Standard deviationCYTK × Standard deviationS&P 500)
= 27.61 ÷ (15.94% × 5.40%)
= 0.32
2 βCYTK
= CovarianceCYTK, S&P 500 ÷ VarianceS&P 500
= 27.61 ÷ 29.16
= 0.95
3 αCYTK
= AverageCYTK – βCYTK × AverageS&P 500
= 3.99% – 0.95 × 0.67%
= 3.36%
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | 4.79% |
| Expected rate of return on market portfolio2 | E(RM) | 13.79% |
| Systematic risk (β) of Cytokinetics Inc. common stock | βCYTK | 0.95 |
| Expected rate of return on Cytokinetics Inc. common stock3 | E(RCYTK) | 13.31% |
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(RCYTK) = RF + βCYTK [E(RM) – RF]
= 4.79% + 0.95 [13.79% – 4.79%]
= 13.31%