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 HP Inc. common stock.
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HP Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Analysis of Liquidity Ratios
- Analysis of Reportable Segments
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Current Ratio since 2005
- Price to Sales (P/S) since 2005
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Rates of Return
HP Inc., monthly rates of return
| HP Inc. (HPQ) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceHPQ,t1 | DividendHPQ,t1 | RHPQ,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Nov 30, 2012 | ||||||
| 1. | Dec 31, 2012 | |||||
| 2. | Jan 31, 2013 | |||||
| 3. | Feb 28, 2013 | |||||
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Sep 30, 2018 | |||||
| 71. | Oct 31, 2018 | |||||
| Average (R): | ||||||
| Standard deviation: | ||||||
| HP Inc. (HPQ) | Standard & Poor’s 500 (S&P 500) | |||||
|---|---|---|---|---|---|---|
| t | Date | PriceHPQ,t1 | DividendHPQ,t1 | RHPQ,t2 | PriceS&P 500,t | RS&P 500,t3 |
| Nov 30, 2012 | ||||||
| 1. | Dec 31, 2012 | |||||
| 2. | Jan 31, 2013 | |||||
| 3. | Feb 28, 2013 | |||||
| 4. | Mar 31, 2013 | |||||
| 5. | Apr 30, 2013 | |||||
| 6. | May 31, 2013 | |||||
| 7. | Jun 30, 2013 | |||||
| 8. | Jul 31, 2013 | |||||
| 9. | Aug 31, 2013 | |||||
| 10. | Sep 30, 2013 | |||||
| 11. | Oct 31, 2013 | |||||
| 12. | Nov 30, 2013 | |||||
| 13. | Dec 31, 2013 | |||||
| 14. | Jan 31, 2014 | |||||
| 15. | Feb 28, 2014 | |||||
| 16. | Mar 31, 2014 | |||||
| 17. | Apr 30, 2014 | |||||
| 18. | May 31, 2014 | |||||
| 19. | Jun 30, 2014 | |||||
| 20. | Jul 31, 2014 | |||||
| 21. | Aug 31, 2014 | |||||
| 22. | Sep 30, 2014 | |||||
| 23. | Oct 31, 2014 | |||||
| 24. | Nov 30, 2014 | |||||
| 25. | Dec 31, 2014 | |||||
| 26. | Jan 31, 2015 | |||||
| 27. | Feb 28, 2015 | |||||
| 28. | Mar 31, 2015 | |||||
| 29. | Apr 30, 2015 | |||||
| 30. | May 31, 2015 | |||||
| 31. | Jun 30, 2015 | |||||
| 32. | Jul 31, 2015 | |||||
| 33. | Aug 31, 2015 | |||||
| 34. | Sep 30, 2015 | |||||
| 35. | Oct 31, 2015 | |||||
| 36. | Nov 30, 2015 | |||||
| 37. | Dec 31, 2015 | |||||
| 38. | Jan 31, 2016 | |||||
| 39. | Feb 29, 2016 | |||||
| 40. | Mar 31, 2016 | |||||
| 41. | Apr 30, 2016 | |||||
| 42. | May 31, 2016 | |||||
| 43. | Jun 30, 2016 | |||||
| 44. | Jul 31, 2016 | |||||
| 45. | Aug 31, 2016 | |||||
| 46. | Sep 30, 2016 | |||||
| 47. | Oct 31, 2016 | |||||
| 48. | Nov 30, 2016 | |||||
| 49. | Dec 31, 2016 | |||||
| 50. | Jan 31, 2017 | |||||
| 51. | Feb 28, 2017 | |||||
| 52. | Mar 31, 2017 | |||||
| 53. | Apr 30, 2017 | |||||
| 54. | May 31, 2017 | |||||
| 55. | Jun 30, 2017 | |||||
| 56. | Jul 31, 2017 | |||||
| 57. | Aug 31, 2017 | |||||
| 58. | Sep 30, 2017 | |||||
| 59. | Oct 31, 2017 | |||||
| 60. | Nov 30, 2017 | |||||
| 61. | Dec 31, 2017 | |||||
| 62. | Jan 31, 2018 | |||||
| 63. | Feb 28, 2018 | |||||
| 64. | Mar 31, 2018 | |||||
| 65. | Apr 30, 2018 | |||||
| 66. | May 31, 2018 | |||||
| 67. | Jun 30, 2018 | |||||
| 68. | Jul 31, 2018 | |||||
| 69. | Aug 31, 2018 | |||||
| 70. | Sep 30, 2018 | |||||
| 71. | Oct 31, 2018 | |||||
| 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 HPQ during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
HP Inc., calculation of variance and covariance of returns
| t | Date | RHPQ,t | RS&P 500,t | (RHPQ,t–RHPQ)2 | (RS&P 500,t–RS&P 500)2 | (RHPQ,t–RHPQ)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Dec 31, 2012 | |||||
| 2. | Jan 31, 2013 | |||||
| 3. | Feb 28, 2013 | |||||
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| . | . | . | . | . | . | . |
| 70. | Sep 30, 2018 | |||||
| 71. | Oct 31, 2018 | |||||
| Total (Σ): | ||||||
| t | Date | RHPQ,t | RS&P 500,t | (RHPQ,t–RHPQ)2 | (RS&P 500,t–RS&P 500)2 | (RHPQ,t–RHPQ)×(RS&P 500,t–RS&P 500) |
|---|---|---|---|---|---|---|
| 1. | Dec 31, 2012 | |||||
| 2. | Jan 31, 2013 | |||||
| 3. | Feb 28, 2013 | |||||
| 4. | Mar 31, 2013 | |||||
| 5. | Apr 30, 2013 | |||||
| 6. | May 31, 2013 | |||||
| 7. | Jun 30, 2013 | |||||
| 8. | Jul 31, 2013 | |||||
| 9. | Aug 31, 2013 | |||||
| 10. | Sep 30, 2013 | |||||
| 11. | Oct 31, 2013 | |||||
| 12. | Nov 30, 2013 | |||||
| 13. | Dec 31, 2013 | |||||
| 14. | Jan 31, 2014 | |||||
| 15. | Feb 28, 2014 | |||||
| 16. | Mar 31, 2014 | |||||
| 17. | Apr 30, 2014 | |||||
| 18. | May 31, 2014 | |||||
| 19. | Jun 30, 2014 | |||||
| 20. | Jul 31, 2014 | |||||
| 21. | Aug 31, 2014 | |||||
| 22. | Sep 30, 2014 | |||||
| 23. | Oct 31, 2014 | |||||
| 24. | Nov 30, 2014 | |||||
| 25. | Dec 31, 2014 | |||||
| 26. | Jan 31, 2015 | |||||
| 27. | Feb 28, 2015 | |||||
| 28. | Mar 31, 2015 | |||||
| 29. | Apr 30, 2015 | |||||
| 30. | May 31, 2015 | |||||
| 31. | Jun 30, 2015 | |||||
| 32. | Jul 31, 2015 | |||||
| 33. | Aug 31, 2015 | |||||
| 34. | Sep 30, 2015 | |||||
| 35. | Oct 31, 2015 | |||||
| 36. | Nov 30, 2015 | |||||
| 37. | Dec 31, 2015 | |||||
| 38. | Jan 31, 2016 | |||||
| 39. | Feb 29, 2016 | |||||
| 40. | Mar 31, 2016 | |||||
| 41. | Apr 30, 2016 | |||||
| 42. | May 31, 2016 | |||||
| 43. | Jun 30, 2016 | |||||
| 44. | Jul 31, 2016 | |||||
| 45. | Aug 31, 2016 | |||||
| 46. | Sep 30, 2016 | |||||
| 47. | Oct 31, 2016 | |||||
| 48. | Nov 30, 2016 | |||||
| 49. | Dec 31, 2016 | |||||
| 50. | Jan 31, 2017 | |||||
| 51. | Feb 28, 2017 | |||||
| 52. | Mar 31, 2017 | |||||
| 53. | Apr 30, 2017 | |||||
| 54. | May 31, 2017 | |||||
| 55. | Jun 30, 2017 | |||||
| 56. | Jul 31, 2017 | |||||
| 57. | Aug 31, 2017 | |||||
| 58. | Sep 30, 2017 | |||||
| 59. | Oct 31, 2017 | |||||
| 60. | Nov 30, 2017 | |||||
| 61. | Dec 31, 2017 | |||||
| 62. | Jan 31, 2018 | |||||
| 63. | Feb 28, 2018 | |||||
| 64. | Mar 31, 2018 | |||||
| 65. | Apr 30, 2018 | |||||
| 66. | May 31, 2018 | |||||
| 67. | Jun 30, 2018 | |||||
| 68. | Jul 31, 2018 | |||||
| 69. | Aug 31, 2018 | |||||
| 70. | Sep 30, 2018 | |||||
| 71. | Oct 31, 2018 | |||||
| Total (Σ): | ||||||
Show all
VarianceHPQ = Σ(RHPQ,t–RHPQ)2 ÷ (71 – 1)
= ÷ (71 – 1)
=
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)
= ÷ (71 – 1)
=
CovarianceHPQ, S&P 500 = Σ(RHPQ,t–RHPQ)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)
= ÷ (71 – 1)
=
Systematic Risk (β) Estimation
| VarianceHPQ | |
| VarianceS&P 500 | |
| CovarianceHPQ, S&P 500 | |
| Correlation coefficientHPQ, S&P 5001 | |
| βHPQ2 | |
| αHPQ3 |
Calculations
1 Correlation coefficientHPQ, S&P 500
= CovarianceHPQ, S&P 500 ÷ (Standard deviationHPQ × Standard deviationS&P 500)
= ÷ ( × )
=
2 βHPQ
= CovarianceHPQ, S&P 500 ÷ VarianceS&P 500
= ÷
=
3 αHPQ
= AverageHPQ – βHPQ × 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 HP Inc. common stock | βHPQ | |
| Expected rate of return on HP Inc. common stock3 | E(RHPQ) | |
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(RHPQ) = RF + βHPQ [E(RM) – RF]
= + [ – ]
=