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 Keurig Dr Pepper Inc. common stock.
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Keurig Dr Pepper Inc. pages available for free this week:
- Statement of Comprehensive Income
- Analysis of Profitability Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Operating Profit Margin since 2008
- Debt to Equity since 2008
- Total Asset Turnover since 2008
- Price to Book Value (P/BV) since 2008
- Analysis of Revenues
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Rates of Return
Keurig Dr Pepper Inc., monthly rates of return
| Keurig Dr Pepper Inc. (KDP) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceKDP,t1 | DividendKDP,t1 | RKDP,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2018 | ||||||
| 1. | Feb 28, 2018 | |||||
| 2. | Mar 31, 2018 | |||||
| 3. | Apr 30, 2018 | |||||
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 46. | Nov 30, 2021 | |||||
| 47. | Dec 31, 2021 | |||||
| Average (R): | ||||||
| Standard deviation: | ||||||
| Keurig Dr Pepper Inc. (KDP) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceKDP,t1 | DividendKDP,t1 | RKDP,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Jan 31, 2018 | ||||||
| 1. | Feb 28, 2018 | |||||
| 2. | Mar 31, 2018 | |||||
| 3. | Apr 30, 2018 | |||||
| 4. | May 31, 2018 | |||||
| 5. | Jun 30, 2018 | |||||
| 6. | Jul 31, 2018 | |||||
| 7. | Aug 31, 2018 | |||||
| 8. | Sep 30, 2018 | |||||
| 9. | Oct 31, 2018 | |||||
| 10. | Nov 30, 2018 | |||||
| 11. | Dec 31, 2018 | |||||
| 12. | Jan 31, 2019 | |||||
| 13. | Feb 28, 2019 | |||||
| 14. | Mar 31, 2019 | |||||
| 15. | Apr 30, 2019 | |||||
| 16. | May 31, 2019 | |||||
| 17. | Jun 30, 2019 | |||||
| 18. | Jul 31, 2019 | |||||
| 19. | Aug 31, 2019 | |||||
| 20. | Sep 30, 2019 | |||||
| 21. | Oct 31, 2019 | |||||
| 22. | Nov 30, 2019 | |||||
| 23. | Dec 31, 2019 | |||||
| 24. | Jan 31, 2020 | |||||
| 25. | Feb 29, 2020 | |||||
| 26. | Mar 31, 2020 | |||||
| 27. | Apr 30, 2020 | |||||
| 28. | May 31, 2020 | |||||
| 29. | Jun 30, 2020 | |||||
| 30. | Jul 31, 2020 | |||||
| 31. | Aug 31, 2020 | |||||
| 32. | Sep 30, 2020 | |||||
| 33. | Oct 31, 2020 | |||||
| 34. | Nov 30, 2020 | |||||
| 35. | Dec 31, 2020 | |||||
| 36. | Jan 31, 2021 | |||||
| 37. | Feb 28, 2021 | |||||
| 38. | Mar 31, 2021 | |||||
| 39. | Apr 30, 2021 | |||||
| 40. | May 31, 2021 | |||||
| 41. | Jun 30, 2021 | |||||
| 42. | Jul 31, 2021 | |||||
| 43. | Aug 31, 2021 | |||||
| 44. | Sep 30, 2021 | |||||
| 45. | Oct 31, 2021 | |||||
| 46. | Nov 30, 2021 | |||||
| 47. | Dec 31, 2021 | |||||
| Average (R): | ||||||
| Standard deviation: | ||||||
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 KDP during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
Keurig Dr Pepper Inc., calculation of variance and covariance of returns
| t | Date | RKDP,t | RS&P 500,t | (RKDP,t–RKDP)2 | (RS&P 500,t–RS&P 500)2 | (RKDP,t–RKDP)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Feb 28, 2018 | |||||
| 2. | Mar 31, 2018 | |||||
| 3. | Apr 30, 2018 | |||||
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 46. | Nov 30, 2021 | |||||
| 47. | Dec 31, 2021 | |||||
| Total (Σ): | ||||||
| t | Date | RKDP,t | RS&P 500,t | (RKDP,t–RKDP)2 | (RS&P 500,t–RS&P 500)2 | (RKDP,t–RKDP)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Feb 28, 2018 | |||||
| 2. | Mar 31, 2018 | |||||
| 3. | Apr 30, 2018 | |||||
| 4. | May 31, 2018 | |||||
| 5. | Jun 30, 2018 | |||||
| 6. | Jul 31, 2018 | |||||
| 7. | Aug 31, 2018 | |||||
| 8. | Sep 30, 2018 | |||||
| 9. | Oct 31, 2018 | |||||
| 10. | Nov 30, 2018 | |||||
| 11. | Dec 31, 2018 | |||||
| 12. | Jan 31, 2019 | |||||
| 13. | Feb 28, 2019 | |||||
| 14. | Mar 31, 2019 | |||||
| 15. | Apr 30, 2019 | |||||
| 16. | May 31, 2019 | |||||
| 17. | Jun 30, 2019 | |||||
| 18. | Jul 31, 2019 | |||||
| 19. | Aug 31, 2019 | |||||
| 20. | Sep 30, 2019 | |||||
| 21. | Oct 31, 2019 | |||||
| 22. | Nov 30, 2019 | |||||
| 23. | Dec 31, 2019 | |||||
| 24. | Jan 31, 2020 | |||||
| 25. | Feb 29, 2020 | |||||
| 26. | Mar 31, 2020 | |||||
| 27. | Apr 30, 2020 | |||||
| 28. | May 31, 2020 | |||||
| 29. | Jun 30, 2020 | |||||
| 30. | Jul 31, 2020 | |||||
| 31. | Aug 31, 2020 | |||||
| 32. | Sep 30, 2020 | |||||
| 33. | Oct 31, 2020 | |||||
| 34. | Nov 30, 2020 | |||||
| 35. | Dec 31, 2020 | |||||
| 36. | Jan 31, 2021 | |||||
| 37. | Feb 28, 2021 | |||||
| 38. | Mar 31, 2021 | |||||
| 39. | Apr 30, 2021 | |||||
| 40. | May 31, 2021 | |||||
| 41. | Jun 30, 2021 | |||||
| 42. | Jul 31, 2021 | |||||
| 43. | Aug 31, 2021 | |||||
| 44. | Sep 30, 2021 | |||||
| 45. | Oct 31, 2021 | |||||
| 46. | Nov 30, 2021 | |||||
| 47. | Dec 31, 2021 | |||||
| Total (Σ): | ||||||
Show all
VarianceKDP = Σ(RKDP,t–RKDP)2 ÷ (47 – 1)
= ÷ (47 – 1)
=
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (47 – 1)
= ÷ (47 – 1)
=
CovarianceKDP, S&P 500 = Σ(RKDP,t–RKDP)×(RS&P 500,t–RS&P 500) ÷ (47 – 1)
= ÷ (47 – 1)
=
Systematic Risk (β) Estimation
| VarianceKDP | |
| VarianceS&P 500 | |
| CovarianceKDP, S&P 500 | |
| Correlation coefficientKDP, S&P 5001 | |
| βKDP2 | |
| αKDP3 |
Calculations
1 Correlation coefficientKDP, S&P 500
= CovarianceKDP, S&P 500 ÷ (Standard deviationKDP × Standard deviationS&P 500)
= ÷ ( × )
=
2 βKDP
= CovarianceKDP, S&P 500 ÷ VarianceS&P 500
= ÷
=
3 αKDP
= AverageKDP – βKDP × AverageS&P 500
= – ×
=
Expected Rate of Return
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | |
| Expected rate of return on market portfolio2 | E(RM) | |
| Systematic risk (β) of Keurig Dr Pepper Inc. common stock | βKDP | |
| Expected rate of return on Keurig Dr Pepper Inc. common stock3 | E(RKDP) | |
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(RKDP) = RF + βKDP [E(RM) – RF]
= + [ – ]
=