Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Hershey Co. common stock.
Rates of Return
Hershey Co. (HSY) | Standard & Poor’s 500 (S&P 500) | |||||
---|---|---|---|---|---|---|
t | Date | PriceHSY,t1 | DividendHSY,t1 | RHSY,t2 | PriceS&P 500,t | RS&P 500,t3 |
Jan 31, 2018 | $110.33 | 2,823.81 | ||||
1. | Feb 28, 2018 | $98.26 | $0.656 | -10.35% | 2,713.83 | -3.89% |
2. | Mar 31, 2018 | $98.96 | 0.71% | 2,640.87 | -2.69% | |
3. | Apr 30, 2018 | $91.94 | -7.09% | 2,648.05 | 0.27% | |
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
58. | Nov 30, 2022 | $235.17 | $1.036 | -1.07% | 4,080.11 | 5.38% |
59. | Dec 31, 2022 | $231.57 | -1.53% | 3,839.50 | -5.90% | |
Average (R): | 1.57% | 0.67% | ||||
Standard deviation: | 4.95% | 5.40% |
Hershey Co. (HSY) | Standard & Poor’s 500 (S&P 500) | |||||
---|---|---|---|---|---|---|
t | Date | PriceHSY,t1 | DividendHSY,t1 | RHSY,t2 | PriceS&P 500,t | RS&P 500,t3 |
Jan 31, 2018 | $110.33 | 2,823.81 | ||||
1. | Feb 28, 2018 | $98.26 | $0.656 | -10.35% | 2,713.83 | -3.89% |
2. | Mar 31, 2018 | $98.96 | 0.71% | 2,640.87 | -2.69% | |
3. | Apr 30, 2018 | $91.94 | -7.09% | 2,648.05 | 0.27% | |
4. | May 31, 2018 | $90.04 | $0.656 | -1.35% | 2,705.27 | 2.16% |
5. | Jun 30, 2018 | $93.06 | 3.35% | 2,718.37 | 0.48% | |
6. | Jul 31, 2018 | $98.21 | 5.53% | 2,816.29 | 3.60% | |
7. | Aug 31, 2018 | $100.52 | $0.722 | 3.09% | 2,901.52 | 3.03% |
8. | Sep 30, 2018 | $102.00 | 1.47% | 2,913.98 | 0.43% | |
9. | Oct 31, 2018 | $107.15 | 5.05% | 2,711.74 | -6.94% | |
10. | Nov 30, 2018 | $108.30 | $0.722 | 1.75% | 2,760.17 | 1.79% |
11. | Dec 31, 2018 | $107.18 | -1.03% | 2,506.85 | -9.18% | |
12. | Jan 31, 2019 | $106.10 | -1.01% | 2,704.10 | 7.87% | |
13. | Feb 28, 2019 | $110.68 | $0.722 | 5.00% | 2,784.49 | 2.97% |
14. | Mar 31, 2019 | $114.83 | 3.75% | 2,834.40 | 1.79% | |
15. | Apr 30, 2019 | $124.85 | 8.73% | 2,945.83 | 3.93% | |
16. | May 31, 2019 | $131.96 | $0.722 | 6.27% | 2,752.06 | -6.58% |
17. | Jun 30, 2019 | $134.03 | 1.57% | 2,941.76 | 6.89% | |
18. | Jul 31, 2019 | $151.74 | 13.21% | 2,980.38 | 1.31% | |
19. | Aug 31, 2019 | $158.48 | $0.773 | 4.95% | 2,926.46 | -1.81% |
20. | Sep 30, 2019 | $154.99 | -2.20% | 2,976.74 | 1.72% | |
21. | Oct 31, 2019 | $146.87 | -5.24% | 3,037.56 | 2.04% | |
22. | Nov 30, 2019 | $148.16 | $0.773 | 1.40% | 3,140.98 | 3.40% |
23. | Dec 31, 2019 | $146.98 | -0.80% | 3,230.78 | 2.86% | |
24. | Jan 31, 2020 | $155.17 | 5.57% | 3,225.52 | -0.16% | |
25. | Feb 29, 2020 | $143.99 | $0.773 | -6.71% | 2,954.22 | -8.41% |
26. | Mar 31, 2020 | $132.50 | -7.98% | 2,584.59 | -12.51% | |
27. | Apr 30, 2020 | $132.43 | -0.05% | 2,912.43 | 12.68% | |
28. | May 31, 2020 | $135.68 | $0.773 | 3.04% | 3,044.31 | 4.53% |
29. | Jun 30, 2020 | $129.62 | -4.47% | 3,100.29 | 1.84% | |
30. | Jul 31, 2020 | $145.41 | 12.18% | 3,271.12 | 5.51% | |
31. | Aug 31, 2020 | $148.64 | $0.804 | 2.77% | 3,500.31 | 7.01% |
32. | Sep 30, 2020 | $143.34 | -3.57% | 3,363.00 | -3.92% | |
33. | Oct 31, 2020 | $137.46 | -4.10% | 3,269.96 | -2.77% | |
34. | Nov 30, 2020 | $147.89 | $0.804 | 8.17% | 3,621.63 | 10.75% |
35. | Dec 31, 2020 | $152.33 | 3.00% | 3,756.07 | 3.71% | |
36. | Jan 31, 2021 | $145.44 | -4.52% | 3,714.24 | -1.11% | |
37. | Feb 28, 2021 | $145.65 | $0.804 | 0.70% | 3,811.15 | 2.61% |
38. | Mar 31, 2021 | $158.16 | 8.59% | 3,972.89 | 4.24% | |
39. | Apr 30, 2021 | $164.30 | 3.88% | 4,181.17 | 5.24% | |
40. | May 31, 2021 | $173.05 | $0.804 | 5.81% | 4,204.11 | 0.55% |
41. | Jun 30, 2021 | $174.18 | 0.65% | 4,297.50 | 2.22% | |
42. | Jul 31, 2021 | $178.88 | 2.70% | 4,395.26 | 2.27% | |
43. | Aug 31, 2021 | $177.70 | $0.901 | -0.16% | 4,522.68 | 2.90% |
44. | Sep 30, 2021 | $169.25 | -4.76% | 4,307.54 | -4.76% | |
45. | Oct 31, 2021 | $175.35 | 3.60% | 4,605.38 | 6.91% | |
46. | Nov 30, 2021 | $177.49 | $0.901 | 1.73% | 4,567.00 | -0.83% |
47. | Dec 31, 2021 | $193.47 | 9.00% | 4,766.18 | 4.36% | |
48. | Jan 31, 2022 | $197.07 | 1.86% | 4,515.55 | -5.26% | |
49. | Feb 28, 2022 | $202.26 | $0.901 | 3.09% | 4,373.94 | -3.14% |
50. | Mar 31, 2022 | $216.63 | 7.10% | 4,530.41 | 3.58% | |
51. | Apr 30, 2022 | $225.77 | 4.22% | 4,131.93 | -8.80% | |
52. | May 31, 2022 | $211.71 | $0.901 | -5.83% | 4,132.15 | 0.01% |
53. | Jun 30, 2022 | $215.16 | 1.63% | 3,785.38 | -8.39% | |
54. | Jul 31, 2022 | $227.96 | 5.95% | 4,130.29 | 9.11% | |
55. | Aug 31, 2022 | $224.67 | $1.036 | -0.99% | 3,955.00 | -4.24% |
56. | Sep 30, 2022 | $220.47 | -1.87% | 3,585.62 | -9.34% | |
57. | Oct 31, 2022 | $238.77 | 8.30% | 3,871.98 | 7.99% | |
58. | Nov 30, 2022 | $235.17 | $1.036 | -1.07% | 4,080.11 | 5.38% |
59. | Dec 31, 2022 | $231.57 | -1.53% | 3,839.50 | -5.90% | |
Average (R): | 1.57% | 0.67% | ||||
Standard deviation: | 4.95% | 5.40% |
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of HSY during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
t | Date | RHSY,t | RS&P 500,t | (RHSY,t–RHSY)2 | (RS&P 500,t–RS&P 500)2 | (RHSY,t–RHSY)×(RS&P 500,t–RS&P 500) |
---|---|---|---|---|---|---|
1. | Feb 28, 2018 | -10.35% | -3.89% | 142.02 | 20.81 | 54.36 |
2. | Mar 31, 2018 | 0.71% | -2.69% | 0.74 | 11.26 | 2.88 |
3. | Apr 30, 2018 | -7.09% | 0.27% | 75.09 | 0.16 | 3.42 |
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. | . | . | . | . | . | . |
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58. | Nov 30, 2022 | -1.07% | 5.38% | 7.00 | 22.17 | -12.46 |
59. | Dec 31, 2022 | -1.53% | -5.90% | 9.63 | 43.08 | 20.37 |
Total (Σ): | 1,420.62 | 1,691.48 | 625.74 |
t | Date | RHSY,t | RS&P 500,t | (RHSY,t–RHSY)2 | (RS&P 500,t–RS&P 500)2 | (RHSY,t–RHSY)×(RS&P 500,t–RS&P 500) |
---|---|---|---|---|---|---|
1. | Feb 28, 2018 | -10.35% | -3.89% | 142.02 | 20.81 | 54.36 |
2. | Mar 31, 2018 | 0.71% | -2.69% | 0.74 | 11.26 | 2.88 |
3. | Apr 30, 2018 | -7.09% | 0.27% | 75.09 | 0.16 | 3.42 |
4. | May 31, 2018 | -1.35% | 2.16% | 8.56 | 2.23 | -4.37 |
5. | Jun 30, 2018 | 3.35% | 0.48% | 3.18 | 0.03 | -0.33 |
6. | Jul 31, 2018 | 5.53% | 3.60% | 15.70 | 8.62 | 11.63 |
7. | Aug 31, 2018 | 3.09% | 3.03% | 2.30 | 5.57 | 3.58 |
8. | Sep 30, 2018 | 1.47% | 0.43% | 0.01 | 0.06 | 0.02 |
9. | Oct 31, 2018 | 5.05% | -6.94% | 12.09 | 57.87 | -26.45 |
10. | Nov 30, 2018 | 1.75% | 1.79% | 0.03 | 1.25 | 0.20 |
11. | Dec 31, 2018 | -1.03% | -9.18% | 6.79 | 96.91 | 25.65 |
12. | Jan 31, 2019 | -1.01% | 7.87% | 6.65 | 51.87 | -18.58 |
13. | Feb 28, 2019 | 5.00% | 2.97% | 11.73 | 5.32 | 7.90 |
14. | Mar 31, 2019 | 3.75% | 1.79% | 4.74 | 1.27 | 2.45 |
15. | Apr 30, 2019 | 8.73% | 3.93% | 51.18 | 10.66 | 23.36 |
16. | May 31, 2019 | 6.27% | -6.58% | 22.10 | 52.48 | -34.06 |
17. | Jun 30, 2019 | 1.57% | 6.89% | 0.00 | 38.77 | -0.02 |
18. | Jul 31, 2019 | 13.21% | 1.31% | 135.53 | 0.42 | 7.52 |
19. | Aug 31, 2019 | 4.95% | -1.81% | 11.42 | 6.13 | -8.37 |
20. | Sep 30, 2019 | -2.20% | 1.72% | 14.24 | 1.11 | -3.97 |
21. | Oct 31, 2019 | -5.24% | 2.04% | 46.39 | 1.89 | -9.38 |
22. | Nov 30, 2019 | 1.40% | 3.40% | 0.03 | 7.50 | -0.46 |
23. | Dec 31, 2019 | -0.80% | 2.86% | 5.61 | 4.81 | -5.19 |
24. | Jan 31, 2020 | 5.57% | -0.16% | 16.00 | 0.69 | -3.32 |
25. | Feb 29, 2020 | -6.71% | -8.41% | 68.54 | 82.40 | 75.15 |
26. | Mar 31, 2020 | -7.98% | -12.51% | 91.23 | 173.67 | 125.88 |
27. | Apr 30, 2020 | -0.05% | 12.68% | 2.64 | 144.43 | -19.53 |
28. | May 31, 2020 | 3.04% | 4.53% | 2.15 | 14.91 | 5.66 |
29. | Jun 30, 2020 | -4.47% | 1.84% | 36.46 | 1.37 | -7.08 |
30. | Jul 31, 2020 | 12.18% | 5.51% | 112.57 | 23.46 | 51.39 |
31. | Aug 31, 2020 | 2.77% | 7.01% | 1.45 | 40.19 | 7.62 |
32. | Sep 30, 2020 | -3.57% | -3.92% | 26.39 | 21.06 | 23.58 |
33. | Oct 31, 2020 | -4.10% | -2.77% | 32.19 | 11.79 | 19.48 |
34. | Nov 30, 2020 | 8.17% | 10.75% | 43.57 | 101.77 | 66.59 |
35. | Dec 31, 2020 | 3.00% | 3.71% | 2.05 | 9.28 | 4.36 |
36. | Jan 31, 2021 | -4.52% | -1.11% | 37.15 | 3.17 | 10.85 |
37. | Feb 28, 2021 | 0.70% | 2.61% | 0.77 | 3.77 | -1.70 |
38. | Mar 31, 2021 | 8.59% | 4.24% | 49.24 | 12.80 | 25.10 |
39. | Apr 30, 2021 | 3.88% | 5.24% | 5.34 | 20.94 | 10.57 |
40. | May 31, 2021 | 5.81% | 0.55% | 18.00 | 0.01 | -0.50 |
41. | Jun 30, 2021 | 0.65% | 2.22% | 0.84 | 2.42 | -1.43 |
42. | Jul 31, 2021 | 2.70% | 2.27% | 1.27 | 2.59 | 1.81 |
43. | Aug 31, 2021 | -0.16% | 2.90% | 2.99 | 4.98 | -3.86 |
44. | Sep 30, 2021 | -4.76% | -4.76% | 40.03 | 29.42 | 34.32 |
45. | Oct 31, 2021 | 3.60% | 6.91% | 4.13 | 39.03 | 12.70 |
46. | Nov 30, 2021 | 1.73% | -0.83% | 0.03 | 2.25 | -0.24 |
47. | Dec 31, 2021 | 9.00% | 4.36% | 55.23 | 13.65 | 27.46 |
48. | Jan 31, 2022 | 1.86% | -5.26% | 0.08 | 35.11 | -1.71 |
49. | Feb 28, 2022 | 3.09% | -3.14% | 2.31 | 14.46 | -5.78 |
50. | Mar 31, 2022 | 7.10% | 3.58% | 30.61 | 8.47 | 16.10 |
51. | Apr 30, 2022 | 4.22% | -8.80% | 7.01 | 89.54 | -25.05 |
52. | May 31, 2022 | -5.83% | 0.01% | 54.77 | 0.44 | 4.89 |
53. | Jun 30, 2022 | 1.63% | -8.39% | 0.00 | 82.06 | -0.52 |
54. | Jul 31, 2022 | 5.95% | 9.11% | 19.16 | 71.32 | 36.97 |
55. | Aug 31, 2022 | -0.99% | -4.24% | 6.56 | 24.11 | 12.57 |
56. | Sep 30, 2022 | -1.87% | -9.34% | 11.84 | 100.12 | 34.43 |
57. | Oct 31, 2022 | 8.30% | 7.99% | 45.27 | 53.58 | 49.25 |
58. | Nov 30, 2022 | -1.07% | 5.38% | 7.00 | 22.17 | -12.46 |
59. | Dec 31, 2022 | -1.53% | -5.90% | 9.63 | 43.08 | 20.37 |
Total (Σ): | 1,420.62 | 1,691.48 | 625.74 |
Show all
VarianceHSY = Σ(RHSY,t–RHSY)2 ÷ (59 – 1)
= 1,420.62 ÷ (59 – 1)
= 24.49
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (59 – 1)
= 1,691.48 ÷ (59 – 1)
= 29.16
CovarianceHSY, S&P 500 = Σ(RHSY,t–RHSY)×(RS&P 500,t–RS&P 500) ÷ (59 – 1)
= 625.74 ÷ (59 – 1)
= 10.79
Systematic Risk (β) Estimation
VarianceHSY | 24.49 |
VarianceS&P 500 | 29.16 |
CovarianceHSY, S&P 500 | 10.79 |
Correlation coefficientHSY, S&P 5001 | 0.40 |
βHSY2 | 0.37 |
αHSY3 | 1.33% |
Calculations
1 Correlation coefficientHSY, S&P 500
= CovarianceHSY, S&P 500 ÷ (Standard deviationHSY × Standard deviationS&P 500)
= 10.79 ÷ (4.95% × 5.40%)
= 0.40
2 βHSY
= CovarianceHSY, S&P 500 ÷ VarianceS&P 500
= 10.79 ÷ 29.16
= 0.37
3 αHSY
= AverageHSY – βHSY × AverageS&P 500
= 1.57% – 0.37 × 0.67%
= 1.33%
Expected Rate of Return
Assumptions | ||
Rate of return on LT Treasury Composite1 | RF | 4.67% |
Expected rate of return on market portfolio2 | E(RM) | 13.79% |
Systematic risk (β) of Hershey Co. common stock | βHSY | 0.37 |
Expected rate of return on Hershey Co. common stock3 | E(RHSY) | 8.04% |
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(RHSY) = RF + βHSY [E(RM) – RF]
= 4.67% + 0.37 [13.79% – 4.67%]
= 8.04%