Stock Analysis on Net

Time Warner Cable Inc. (NYSE:TWC)

This company has been moved to the archive! The financial data has not been updated since April 28, 2016.

Capital Asset Pricing Model (CAPM)

Microsoft Excel

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Time Warner Cable Inc. common stock.


Rates of Return

Time Warner Cable Inc., monthly rates of return

Microsoft Excel
Time Warner Cable Inc. (TWC) Standard & Poor’s 500 (S&P 500)
t Date PriceTWC,t1 DividendTWC,t1 RTWC,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2011 $67.83 1,286.12
1. Feb 28, 2011 $72.18 $0.48 7.12% 1,327.22 3.20%
2. Mar 31, 2011 $71.34 -1.16% 1,325.83 -0.10%
3. Apr 30, 2011 $78.13 9.52% 1,363.61 2.85%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2015 $184.77 -2.44% 2,080.41 0.05%
59. Dec 31, 2015 $185.59 $0.75 0.85% 2,043.94 -1.75%
Average (R): 2.12% 0.84%
Standard deviation: 6.31% 3.40%
Time Warner Cable Inc. (TWC) Standard & Poor’s 500 (S&P 500)
t Date PriceTWC,t1 DividendTWC,t1 RTWC,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2011 $67.83 1,286.12
1. Feb 28, 2011 $72.18 $0.48 7.12% 1,327.22 3.20%
2. Mar 31, 2011 $71.34 -1.16% 1,325.83 -0.10%
3. Apr 30, 2011 $78.13 9.52% 1,363.61 2.85%
4. May 31, 2011 $77.22 $0.48 -0.55% 1,345.20 -1.35%
5. Jun 30, 2011 $78.04 1.06% 1,320.64 -1.83%
6. Jul 31, 2011 $73.31 -6.06% 1,292.28 -2.15%
7. Aug 31, 2011 $65.50 $0.48 -10.00% 1,218.89 -5.68%
8. Sep 30, 2011 $62.67 -4.32% 1,131.42 -7.18%
9. Oct 31, 2011 $63.69 1.63% 1,253.30 10.77%
10. Nov 30, 2011 $60.48 $0.48 -4.29% 1,246.96 -0.51%
11. Dec 31, 2011 $63.57 5.11% 1,257.60 0.85%
12. Jan 31, 2012 $73.72 15.97% 1,312.41 4.36%
13. Feb 29, 2012 $79.34 $0.56 8.38% 1,365.68 4.06%
14. Mar 31, 2012 $81.50 2.72% 1,408.47 3.13%
15. Apr 30, 2012 $80.45 -1.29% 1,397.91 -0.75%
16. May 31, 2012 $75.40 $0.56 -5.58% 1,310.33 -6.27%
17. Jun 30, 2012 $82.10 8.89% 1,362.16 3.96%
18. Jul 31, 2012 $84.93 3.45% 1,379.32 1.26%
19. Aug 31, 2012 $88.82 $0.56 5.24% 1,406.58 1.98%
20. Sep 30, 2012 $95.06 7.03% 1,440.67 2.42%
21. Oct 31, 2012 $99.15 4.30% 1,412.16 -1.98%
22. Nov 30, 2012 $94.89 $0.56 -3.73% 1,416.18 0.28%
23. Dec 31, 2012 $97.19 2.42% 1,426.19 0.71%
24. Jan 31, 2013 $89.34 -8.08% 1,498.11 5.04%
25. Feb 28, 2013 $86.39 $0.65 -2.57% 1,514.68 1.11%
26. Mar 31, 2013 $96.06 11.19% 1,569.19 3.60%
27. Apr 30, 2013 $93.89 -2.26% 1,597.57 1.81%
28. May 31, 2013 $95.51 $0.65 2.42% 1,630.74 2.08%
29. Jun 30, 2013 $112.48 17.77% 1,606.28 -1.50%
30. Jul 31, 2013 $114.07 1.41% 1,685.73 4.95%
31. Aug 31, 2013 $107.35 $0.65 -5.32% 1,632.97 -3.13%
32. Sep 30, 2013 $111.60 3.96% 1,681.55 2.97%
33. Oct 31, 2013 $120.15 7.66% 1,756.54 4.46%
34. Nov 30, 2013 $138.22 $0.65 15.58% 1,805.81 2.80%
35. Dec 31, 2013 $135.50 -1.97% 1,848.36 2.36%
36. Jan 31, 2014 $133.27 -1.65% 1,782.59 -3.56%
37. Feb 28, 2014 $140.35 $0.75 5.88% 1,859.45 4.31%
38. Mar 31, 2014 $137.18 -2.26% 1,872.34 0.69%
39. Apr 30, 2014 $141.46 3.12% 1,883.95 0.62%
40. May 31, 2014 $141.16 $0.75 0.32% 1,923.57 2.10%
41. Jun 30, 2014 $147.30 4.35% 1,960.23 1.91%
42. Jul 31, 2014 $145.10 -1.49% 1,930.67 -1.51%
43. Aug 31, 2014 $147.93 $0.75 2.47% 2,003.37 3.77%
44. Sep 30, 2014 $143.49 -3.00% 1,972.29 -1.55%
45. Oct 31, 2014 $147.21 2.59% 2,018.05 2.32%
46. Nov 30, 2014 $149.28 $0.75 1.92% 2,067.56 2.45%
47. Dec 31, 2014 $152.06 1.86% 2,058.90 -0.42%
48. Jan 31, 2015 $136.13 -10.48% 1,994.99 -3.10%
49. Feb 28, 2015 $154.05 $0.75 13.71% 2,104.50 5.49%
50. Mar 31, 2015 $149.88 $0.75 -2.22% 2,067.89 -1.74%
51. Apr 30, 2015 $155.52 3.76% 2,085.51 0.85%
52. May 31, 2015 $180.89 16.31% 2,107.39 1.05%
53. Jun 30, 2015 $178.17 $0.75 -1.09% 2,063.11 -2.10%
54. Jul 31, 2015 $190.01 6.65% 2,103.84 1.97%
55. Aug 31, 2015 $186.02 -2.10% 1,972.18 -6.26%
56. Sep 30, 2015 $179.37 $0.75 -3.17% 1,920.03 -2.64%
57. Oct 31, 2015 $189.40 5.59% 2,079.36 8.30%
58. Nov 30, 2015 $184.77 -2.44% 2,080.41 0.05%
59. Dec 31, 2015 $185.59 $0.75 0.85% 2,043.94 -1.75%
Average (R): 2.12% 0.84%
Standard deviation: 6.31% 3.40%

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1 Data in US$ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of TWC during period t

3 Rate of return on S&P 500 (the market portfolio proxy) during period t


Variance and Covariance

Time Warner Cable Inc., calculation of variance and covariance of returns

Microsoft Excel
t Date RTWC,t RS&P 500,t (RTWC,tRTWC)2 (RS&P 500,tRS&P 500)2 (RTWC,tRTWC)×(RS&P 500,tRS&P 500)
1. Feb 28, 2011 7.12% 3.20% 25.00 5.53 11.75
2. Mar 31, 2011 -1.16% -0.10% 10.79 0.90 3.12
3. Apr 30, 2011 9.52% 2.85% 54.72 4.02 14.83
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2015 -2.44% 0.05% 20.84 0.63 3.63
59. Dec 31, 2015 0.85% -1.75% 1.62 6.75 3.30
Total (Σ): 2,310.83 670.89 635.06
t Date RTWC,t RS&P 500,t (RTWC,tRTWC)2 (RS&P 500,tRS&P 500)2 (RTWC,tRTWC)×(RS&P 500,tRS&P 500)
1. Feb 28, 2011 7.12% 3.20% 25.00 5.53 11.75
2. Mar 31, 2011 -1.16% -0.10% 10.79 0.90 3.12
3. Apr 30, 2011 9.52% 2.85% 54.72 4.02 14.83
4. May 31, 2011 -0.55% -1.35% 7.13 4.82 5.86
5. Jun 30, 2011 1.06% -1.83% 1.12 7.13 2.83
6. Jul 31, 2011 -6.06% -2.15% 66.94 8.95 24.48
7. Aug 31, 2011 -10.00% -5.68% 146.88 42.56 79.06
8. Sep 30, 2011 -4.32% -7.18% 41.49 64.34 51.67
9. Oct 31, 2011 1.63% 10.77% 0.24 98.56 -4.90
10. Nov 30, 2011 -4.29% -0.51% 41.05 1.82 8.65
11. Dec 31, 2011 5.11% 0.85% 8.93 0.00 0.03
12. Jan 31, 2012 15.97% 4.36% 191.71 12.35 48.65
13. Feb 29, 2012 8.38% 4.06% 39.22 10.33 20.13
14. Mar 31, 2012 2.72% 3.13% 0.36 5.24 1.38
15. Apr 30, 2012 -1.29% -0.75% 11.62 2.54 5.44
16. May 31, 2012 -5.58% -6.27% 59.32 50.55 54.76
17. Jun 30, 2012 8.89% 3.96% 45.77 9.68 21.04
18. Jul 31, 2012 3.45% 1.26% 1.76 0.17 0.55
19. Aug 31, 2012 5.24% 1.98% 9.73 1.28 3.53
20. Sep 30, 2012 7.03% 2.42% 24.06 2.49 7.74
21. Oct 31, 2012 4.30% -1.98% 4.76 7.97 -6.16
22. Nov 30, 2012 -3.73% 0.28% 34.25 0.31 3.28
23. Dec 31, 2012 2.42% 0.71% 0.09 0.02 -0.04
24. Jan 31, 2013 -8.08% 5.04% 103.99 17.62 -42.81
25. Feb 28, 2013 -2.57% 1.11% 22.04 0.07 -1.23
26. Mar 31, 2013 11.19% 3.60% 82.31 7.58 24.99
27. Apr 30, 2013 -2.26% 1.81% 19.18 0.93 -4.22
28. May 31, 2013 2.42% 2.08% 0.09 1.52 0.37
29. Jun 30, 2013 17.77% -1.50% 244.83 5.50 -36.69
30. Jul 31, 2013 1.41% 4.95% 0.50 16.82 -2.90
31. Aug 31, 2013 -5.32% -3.13% 55.38 15.80 29.58
32. Sep 30, 2013 3.96% 2.97% 3.38 4.54 3.92
33. Oct 31, 2013 7.66% 4.46% 30.70 13.07 20.03
34. Nov 30, 2013 15.58% 2.80% 181.17 3.84 26.38
35. Dec 31, 2013 -1.97% 2.36% 16.72 2.28 -6.18
36. Jan 31, 2014 -1.65% -3.56% 14.19 19.39 16.58
37. Feb 28, 2014 5.88% 4.31% 14.10 12.02 13.02
38. Mar 31, 2014 -2.26% 0.69% 19.18 0.02 0.66
39. Apr 30, 2014 3.12% 0.62% 1.00 0.05 -0.22
40. May 31, 2014 0.32% 2.10% 3.25 1.58 -2.27
41. Jun 30, 2014 4.35% 1.91% 4.97 1.13 2.37
42. Jul 31, 2014 -1.49% -1.51% 13.06 5.54 8.50
43. Aug 31, 2014 2.47% 3.77% 0.12 8.53 1.01
44. Sep 30, 2014 -3.00% -1.55% 26.24 5.74 12.27
45. Oct 31, 2014 2.59% 2.32% 0.22 2.18 0.70
46. Nov 30, 2014 1.92% 2.45% 0.04 2.59 -0.33
47. Dec 31, 2014 1.86% -0.42% 0.07 1.60 0.33
48. Jan 31, 2015 -10.48% -3.10% 158.68 15.59 49.74
49. Feb 28, 2015 13.71% 5.49% 134.42 21.57 53.85
50. Mar 31, 2015 -2.22% -1.74% 18.84 6.68 11.22
51. Apr 30, 2015 3.76% 0.85% 2.70 0.00 0.01
52. May 31, 2015 16.31% 1.05% 201.42 0.04 2.90
53. Jun 30, 2015 -1.09% -2.10% 10.30 8.68 9.46
54. Jul 31, 2015 6.65% 1.97% 20.47 1.28 5.11
55. Aug 31, 2015 -2.10% -6.26% 17.81 50.45 29.98
56. Sep 30, 2015 -3.17% -2.64% 28.01 12.17 18.47
57. Oct 31, 2015 5.59% 8.30% 12.05 55.56 25.87
58. Nov 30, 2015 -2.44% 0.05% 20.84 0.63 3.63
59. Dec 31, 2015 0.85% -1.75% 1.62 6.75 3.30
Total (Σ): 2,310.83 670.89 635.06

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VarianceTWC = Σ(RTWC,tRTWC)2 ÷ (59 – 1)
= 2,310.83 ÷ (59 – 1)
= 39.84

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= 670.89 ÷ (59 – 1)
= 11.57

CovarianceTWC, S&P 500 = Σ(RTWC,tRTWC)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= 635.06 ÷ (59 – 1)
= 10.95


Systematic Risk (β) Estimation

Microsoft Excel
VarianceTWC 39.84
VarianceS&P 500 11.57
CovarianceTWC, S&P 500 10.95
Correlation coefficientTWC, S&P 5001 0.51
βTWC2 0.95
αTWC3 1.32%

Calculations

1 Correlation coefficientTWC, S&P 500
= CovarianceTWC, S&P 500 ÷ (Standard deviationTWC × Standard deviationS&P 500)
= 10.95 ÷ (6.31% × 3.40%)
= 0.51

2 βTWC
= CovarianceTWC, S&P 500 ÷ VarianceS&P 500
= 10.95 ÷ 11.57
= 0.95

3 αTWC
= AverageTWC – βTWC × AverageS&P 500
= 2.12%0.95 × 0.84%
= 1.32%


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.68%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk (β) of Time Warner Cable Inc. common stock βTWC 0.95
 
Expected rate of return on Time Warner Cable Inc. common stock3 E(RTWC) 13.30%

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).

2 See details »

3 E(RTWC) = RF + βTWC [E(RM) – RF]
= 4.68% + 0.95 [13.79%4.68%]
= 13.30%