Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Dollar Tree Inc. common stock.
Rates of Return
Dollar Tree Inc. (DLTR) | Standard & Poor’s 500 (S&P 500) | |||||
---|---|---|---|---|---|---|
t | Date | PriceDLTR,t1 | DividendDLTR,t1 | RDLTR,t2 | PriceS&P 500,t | RS&P 500,t3 |
Feb 29, 2016 | $80.25 | 1,932.23 | ||||
1. | Mar 31, 2016 | $82.46 | 2.75% | 2,059.74 | 6.60% | |
2. | Apr 30, 2016 | $79.71 | -3.33% | 2,065.30 | 0.27% | |
3. | May 31, 2016 | $90.54 | 13.59% | 2,096.95 | 1.53% | |
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
70. | Dec 31, 2021 | $140.52 | 5.00% | 4,766.18 | 4.36% | |
71. | Jan 31, 2022 | $131.22 | -6.62% | 4,515.55 | -5.26% | |
Average (R): | 1.08% | 1.29% | ||||
Standard deviation: | 8.96% | 4.25% |
Dollar Tree Inc. (DLTR) | Standard & Poor’s 500 (S&P 500) | |||||
---|---|---|---|---|---|---|
t | Date | PriceDLTR,t1 | DividendDLTR,t1 | RDLTR,t2 | PriceS&P 500,t | RS&P 500,t3 |
Feb 29, 2016 | $80.25 | 1,932.23 | ||||
1. | Mar 31, 2016 | $82.46 | 2.75% | 2,059.74 | 6.60% | |
2. | Apr 30, 2016 | $79.71 | -3.33% | 2,065.30 | 0.27% | |
3. | May 31, 2016 | $90.54 | 13.59% | 2,096.95 | 1.53% | |
4. | Jun 30, 2016 | $94.24 | 4.09% | 2,098.86 | 0.09% | |
5. | Jul 31, 2016 | $96.29 | 2.18% | 2,173.60 | 3.56% | |
6. | Aug 31, 2016 | $82.70 | -14.11% | 2,170.95 | -0.12% | |
7. | Sep 30, 2016 | $78.93 | -4.56% | 2,168.27 | -0.12% | |
8. | Oct 31, 2016 | $75.55 | -4.28% | 2,126.15 | -1.94% | |
9. | Nov 30, 2016 | $88.16 | 16.69% | 2,198.81 | 3.42% | |
10. | Dec 31, 2016 | $77.18 | -12.45% | 2,238.83 | 1.82% | |
11. | Jan 31, 2017 | $77.19 | 0.01% | 2,278.87 | 1.79% | |
12. | Feb 28, 2017 | $76.68 | -0.66% | 2,363.64 | 3.72% | |
13. | Mar 31, 2017 | $78.46 | 2.32% | 2,362.72 | -0.04% | |
14. | Apr 30, 2017 | $82.77 | 5.49% | 2,384.20 | 0.91% | |
15. | May 31, 2017 | $77.70 | -6.13% | 2,411.80 | 1.16% | |
16. | Jun 30, 2017 | $69.92 | -10.01% | 2,423.41 | 0.48% | |
17. | Jul 31, 2017 | $72.08 | 3.09% | 2,470.30 | 1.93% | |
18. | Aug 31, 2017 | $79.64 | 10.49% | 2,471.65 | 0.05% | |
19. | Sep 30, 2017 | $86.82 | 9.02% | 2,519.36 | 1.93% | |
20. | Oct 31, 2017 | $91.25 | 5.10% | 2,575.26 | 2.22% | |
21. | Nov 30, 2017 | $102.76 | 12.61% | 2,647.58 | 2.81% | |
22. | Dec 31, 2017 | $107.31 | 4.43% | 2,673.61 | 0.98% | |
23. | Jan 31, 2018 | $115.00 | 7.17% | 2,823.81 | 5.62% | |
24. | Feb 28, 2018 | $102.64 | -10.75% | 2,713.83 | -3.89% | |
25. | Mar 31, 2018 | $94.90 | -7.54% | 2,640.87 | -2.69% | |
26. | Apr 30, 2018 | $95.89 | 1.04% | 2,648.05 | 0.27% | |
27. | May 31, 2018 | $82.59 | -13.87% | 2,705.27 | 2.16% | |
28. | Jun 30, 2018 | $85.00 | 2.92% | 2,718.37 | 0.48% | |
29. | Jul 31, 2018 | $91.28 | 7.39% | 2,816.29 | 3.60% | |
30. | Aug 31, 2018 | $80.51 | -11.80% | 2,901.52 | 3.03% | |
31. | Sep 30, 2018 | $81.55 | 1.29% | 2,913.98 | 0.43% | |
32. | Oct 31, 2018 | $84.30 | 3.37% | 2,711.74 | -6.94% | |
33. | Nov 30, 2018 | $86.77 | 2.93% | 2,760.17 | 1.79% | |
34. | Dec 31, 2018 | $90.32 | 4.09% | 2,506.85 | -9.18% | |
35. | Jan 31, 2019 | $96.83 | 7.21% | 2,704.10 | 7.87% | |
36. | Feb 28, 2019 | $96.33 | -0.52% | 2,784.49 | 2.97% | |
37. | Mar 31, 2019 | $105.04 | 9.04% | 2,834.40 | 1.79% | |
38. | Apr 30, 2019 | $111.28 | 5.94% | 2,945.83 | 3.93% | |
39. | May 31, 2019 | $101.59 | -8.71% | 2,752.06 | -6.58% | |
40. | Jun 30, 2019 | $107.39 | 5.71% | 2,941.76 | 6.89% | |
41. | Jul 31, 2019 | $101.75 | -5.25% | 2,980.38 | 1.31% | |
42. | Aug 31, 2019 | $101.53 | -0.22% | 2,926.46 | -1.81% | |
43. | Sep 30, 2019 | $114.16 | 12.44% | 2,976.74 | 1.72% | |
44. | Oct 31, 2019 | $110.40 | -3.29% | 3,037.56 | 2.04% | |
45. | Nov 30, 2019 | $91.46 | -17.16% | 3,140.98 | 3.40% | |
46. | Dec 31, 2019 | $94.05 | 2.83% | 3,230.78 | 2.86% | |
47. | Jan 31, 2020 | $87.07 | -7.42% | 3,225.52 | -0.16% | |
48. | Feb 29, 2020 | $83.03 | -4.64% | 2,954.22 | -8.41% | |
49. | Mar 31, 2020 | $73.47 | -11.51% | 2,584.59 | -12.51% | |
50. | Apr 30, 2020 | $79.67 | 8.44% | 2,912.43 | 12.68% | |
51. | May 31, 2020 | $97.87 | 22.84% | 3,044.31 | 4.53% | |
52. | Jun 30, 2020 | $92.68 | -5.30% | 3,100.29 | 1.84% | |
53. | Jul 31, 2020 | $93.35 | 0.72% | 3,271.12 | 5.51% | |
54. | Aug 31, 2020 | $96.27 | 3.13% | 3,500.31 | 7.01% | |
55. | Sep 30, 2020 | $91.34 | -5.12% | 3,363.00 | -3.92% | |
56. | Oct 31, 2020 | $90.32 | -1.12% | 3,269.96 | -2.77% | |
57. | Nov 30, 2020 | $109.24 | 20.95% | 3,621.63 | 10.75% | |
58. | Dec 31, 2020 | $108.04 | -1.10% | 3,756.07 | 3.71% | |
59. | Jan 31, 2021 | $101.66 | -5.91% | 3,714.24 | -1.11% | |
60. | Feb 28, 2021 | $98.20 | -3.40% | 3,811.15 | 2.61% | |
61. | Mar 31, 2021 | $114.46 | 16.56% | 3,972.89 | 4.24% | |
62. | Apr 30, 2021 | $114.90 | 0.38% | 4,181.17 | 5.24% | |
63. | May 31, 2021 | $97.50 | -15.14% | 4,204.11 | 0.55% | |
64. | Jun 30, 2021 | $99.50 | 2.05% | 4,297.50 | 2.22% | |
65. | Jul 31, 2021 | $99.79 | 0.29% | 4,395.26 | 2.27% | |
66. | Aug 31, 2021 | $90.54 | -9.27% | 4,522.68 | 2.90% | |
67. | Sep 30, 2021 | $95.72 | 5.72% | 4,307.54 | -4.76% | |
68. | Oct 31, 2021 | $107.76 | 12.58% | 4,605.38 | 6.91% | |
69. | Nov 30, 2021 | $133.83 | 24.19% | 4,567.00 | -0.83% | |
70. | Dec 31, 2021 | $140.52 | 5.00% | 4,766.18 | 4.36% | |
71. | Jan 31, 2022 | $131.22 | -6.62% | 4,515.55 | -5.26% | |
Average (R): | 1.08% | 1.29% | ||||
Standard deviation: | 8.96% | 4.25% |
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of DLTR during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
t | Date | RDLTR,t | RS&P 500,t | (RDLTR,t–RDLTR)2 | (RS&P 500,t–RS&P 500)2 | (RDLTR,t–RDLTR)×(RS&P 500,t–RS&P 500) |
---|---|---|---|---|---|---|
1. | Mar 31, 2016 | 2.75% | 6.60% | 2.79 | 28.16 | 8.87 |
2. | Apr 30, 2016 | -3.33% | 0.27% | 19.52 | 1.05 | 4.52 |
3. | May 31, 2016 | 13.59% | 1.53% | 156.34 | 0.06 | 3.00 |
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
70. | Dec 31, 2021 | 5.00% | 4.36% | 15.33 | 9.42 | 12.02 |
71. | Jan 31, 2022 | -6.62% | -5.26% | 59.31 | 42.91 | 50.45 |
Total (Σ): | 5,617.47 | 1,262.70 | 1,008.02 |
t | Date | RDLTR,t | RS&P 500,t | (RDLTR,t–RDLTR)2 | (RS&P 500,t–RS&P 500)2 | (RDLTR,t–RDLTR)×(RS&P 500,t–RS&P 500) |
---|---|---|---|---|---|---|
1. | Mar 31, 2016 | 2.75% | 6.60% | 2.79 | 28.16 | 8.87 |
2. | Apr 30, 2016 | -3.33% | 0.27% | 19.52 | 1.05 | 4.52 |
3. | May 31, 2016 | 13.59% | 1.53% | 156.34 | 0.06 | 3.00 |
4. | Jun 30, 2016 | 4.09% | 0.09% | 9.02 | 1.44 | -3.61 |
5. | Jul 31, 2016 | 2.18% | 3.56% | 1.19 | 5.15 | 2.48 |
6. | Aug 31, 2016 | -14.11% | -0.12% | 230.94 | 2.00 | 21.49 |
7. | Sep 30, 2016 | -4.56% | -0.12% | 31.83 | 2.00 | 7.99 |
8. | Oct 31, 2016 | -4.28% | -1.94% | 28.79 | 10.46 | 17.36 |
9. | Nov 30, 2016 | 16.69% | 3.42% | 243.61 | 4.52 | 33.17 |
10. | Dec 31, 2016 | -12.45% | 1.82% | 183.27 | 0.28 | -7.15 |
11. | Jan 31, 2017 | 0.01% | 1.79% | 1.14 | 0.25 | -0.53 |
12. | Feb 28, 2017 | -0.66% | 3.72% | 3.04 | 5.89 | -4.23 |
13. | Mar 31, 2017 | 2.32% | -0.04% | 1.53 | 1.77 | -1.65 |
14. | Apr 30, 2017 | 5.49% | 0.91% | 19.45 | 0.15 | -1.69 |
15. | May 31, 2017 | -6.13% | 1.16% | 51.96 | 0.02 | 0.97 |
16. | Jun 30, 2017 | -10.01% | 0.48% | 123.12 | 0.66 | 9.00 |
17. | Jul 31, 2017 | 3.09% | 1.93% | 4.03 | 0.41 | 1.29 |
18. | Aug 31, 2017 | 10.49% | 0.05% | 88.46 | 1.53 | -11.64 |
19. | Sep 30, 2017 | 9.02% | 1.93% | 62.93 | 0.41 | 5.06 |
20. | Oct 31, 2017 | 5.10% | 2.22% | 16.16 | 0.86 | 3.72 |
21. | Nov 30, 2017 | 12.61% | 2.81% | 132.96 | 2.30 | 17.48 |
22. | Dec 31, 2017 | 4.43% | 0.98% | 11.19 | 0.10 | -1.03 |
23. | Jan 31, 2018 | 7.17% | 5.62% | 37.01 | 18.71 | 26.31 |
24. | Feb 28, 2018 | -10.75% | -3.89% | 139.97 | 26.90 | 61.37 |
25. | Mar 31, 2018 | -7.54% | -2.69% | 74.37 | 15.85 | 34.33 |
26. | Apr 30, 2018 | 1.04% | 0.27% | 0.00 | 1.04 | 0.04 |
27. | May 31, 2018 | -13.87% | 2.16% | 223.59 | 0.75 | -12.99 |
28. | Jun 30, 2018 | 2.92% | 0.48% | 3.37 | 0.65 | -1.48 |
29. | Jul 31, 2018 | 7.39% | 3.60% | 39.76 | 5.34 | 14.56 |
30. | Aug 31, 2018 | -11.80% | 3.03% | 165.94 | 3.01 | -22.34 |
31. | Sep 30, 2018 | 1.29% | 0.43% | 0.04 | 0.74 | -0.18 |
32. | Oct 31, 2018 | 3.37% | -6.94% | 5.24 | 67.78 | -18.85 |
33. | Nov 30, 2018 | 2.93% | 1.79% | 3.41 | 0.24 | 0.91 |
34. | Dec 31, 2018 | 4.09% | -9.18% | 9.05 | 109.62 | -31.50 |
35. | Jan 31, 2019 | 7.21% | 7.87% | 37.51 | 43.25 | 40.28 |
36. | Feb 28, 2019 | -0.52% | 2.97% | 2.56 | 2.82 | -2.69 |
37. | Mar 31, 2019 | 9.04% | 1.79% | 63.34 | 0.25 | 3.98 |
38. | Apr 30, 2019 | 5.94% | 3.93% | 23.60 | 6.96 | 12.82 |
39. | May 31, 2019 | -8.71% | -6.58% | 95.86 | 61.94 | 77.05 |
40. | Jun 30, 2019 | 5.71% | 6.89% | 21.40 | 31.37 | 25.91 |
41. | Jul 31, 2019 | -5.25% | 1.31% | 40.13 | 0.00 | -0.13 |
42. | Aug 31, 2019 | -0.22% | -1.81% | 1.69 | 9.62 | 4.03 |
43. | Sep 30, 2019 | 12.44% | 1.72% | 128.97 | 0.18 | 4.84 |
44. | Oct 31, 2019 | -3.29% | 2.04% | 19.15 | 0.56 | -3.29 |
45. | Nov 30, 2019 | -17.16% | 3.40% | 332.65 | 4.46 | -38.53 |
46. | Dec 31, 2019 | 2.83% | 2.86% | 3.06 | 2.45 | 2.74 |
47. | Jan 31, 2020 | -7.42% | -0.16% | 72.33 | 2.12 | 12.37 |
48. | Feb 29, 2020 | -4.64% | -8.41% | 32.75 | 94.15 | 55.53 |
49. | Mar 31, 2020 | -11.51% | -12.51% | 158.68 | 190.56 | 173.89 |
50. | Apr 30, 2020 | 8.44% | 12.68% | 54.11 | 129.78 | 83.80 |
51. | May 31, 2020 | 22.84% | 4.53% | 473.55 | 10.47 | 70.42 |
52. | Jun 30, 2020 | -5.30% | 1.84% | 40.78 | 0.30 | -3.49 |
53. | Jul 31, 2020 | 0.72% | 5.51% | 0.13 | 17.79 | -1.52 |
54. | Aug 31, 2020 | 3.13% | 7.01% | 4.18 | 32.65 | 11.69 |
55. | Sep 30, 2020 | -5.12% | -3.92% | 38.49 | 27.20 | 32.35 |
56. | Oct 31, 2020 | -1.12% | -2.77% | 4.84 | 16.47 | 8.93 |
57. | Nov 30, 2020 | 20.95% | 10.75% | 394.61 | 89.54 | 187.97 |
58. | Dec 31, 2020 | -1.10% | 3.71% | 4.76 | 5.86 | -5.28 |
59. | Jan 31, 2021 | -5.91% | -1.11% | 48.83 | 5.79 | 16.81 |
60. | Feb 28, 2021 | -3.40% | 2.61% | 20.13 | 1.73 | -5.91 |
61. | Mar 31, 2021 | 16.56% | 4.24% | 239.48 | 8.71 | 45.68 |
62. | Apr 30, 2021 | 0.38% | 5.24% | 0.49 | 15.60 | -2.76 |
63. | May 31, 2021 | -15.14% | 0.55% | 263.30 | 0.55 | 12.07 |
64. | Jun 30, 2021 | 2.05% | 2.22% | 0.94 | 0.86 | 0.90 |
65. | Jul 31, 2021 | 0.29% | 2.27% | 0.63 | 0.97 | -0.78 |
66. | Aug 31, 2021 | -9.27% | 2.90% | 107.17 | 2.58 | -16.63 |
67. | Sep 30, 2021 | 5.72% | -4.76% | 21.51 | 36.59 | -28.06 |
68. | Oct 31, 2021 | 12.58% | 6.91% | 132.14 | 31.61 | 64.63 |
69. | Nov 30, 2021 | 24.19% | -0.83% | 534.06 | 4.52 | -49.12 |
70. | Dec 31, 2021 | 5.00% | 4.36% | 15.33 | 9.42 | 12.02 |
71. | Jan 31, 2022 | -6.62% | -5.26% | 59.31 | 42.91 | 50.45 |
Total (Σ): | 5,617.47 | 1,262.70 | 1,008.02 |
Show all
VarianceDLTR = Σ(RDLTR,t–RDLTR)2 ÷ (71 – 1)
= 5,617.47 ÷ (71 – 1)
= 80.25
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)
= 1,262.70 ÷ (71 – 1)
= 18.04
CovarianceDLTR, S&P 500 = Σ(RDLTR,t–RDLTR)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)
= 1,008.02 ÷ (71 – 1)
= 14.40
Systematic Risk (β) Estimation
VarianceDLTR | 80.25 |
VarianceS&P 500 | 18.04 |
CovarianceDLTR, S&P 500 | 14.40 |
Correlation coefficientDLTR, S&P 5001 | 0.38 |
βDLTR2 | 0.80 |
αDLTR3 | 0.05% |
Calculations
1 Correlation coefficientDLTR, S&P 500
= CovarianceDLTR, S&P 500 ÷ (Standard deviationDLTR × Standard deviationS&P 500)
= 14.40 ÷ (8.96% × 4.25%)
= 0.38
2 βDLTR
= CovarianceDLTR, S&P 500 ÷ VarianceS&P 500
= 14.40 ÷ 18.04
= 0.80
3 αDLTR
= AverageDLTR – βDLTR × AverageS&P 500
= 1.08% – 0.80 × 1.29%
= 0.05%
Expected Rate of Return
Assumptions | ||
Rate of return on LT Treasury Composite1 | RF | 4.68% |
Expected rate of return on market portfolio2 | E(RM) | 13.78% |
Systematic risk (β) of Dollar Tree Inc. common stock | βDLTR | 0.80 |
Expected rate of return on Dollar Tree Inc. common stock3 | E(RDLTR) | 11.95% |
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(RDLTR) = RF + βDLTR [E(RM) – RF]
= 4.68% + 0.80 [13.78% – 4.68%]
= 11.95%