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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 Johnson & Johnson's
common stock.

Rates of Return
Systematic Risk () Estimation
Expected Rate of Return

See Also:
Novartis AG (NVS), CAPM
Pfizer Inc. (PFE), CAPM
Merck & Co. Inc. (MRK), CAPM
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Rates of Return
Johnson & Johnson, monthly rates of return
Johnson & Johnson (JNJ)
t

Date

1.

PriceJNJ,t1

Jan 31, 2009

57.69

Feb 28, 2009

50.00

DividendJNJ,t1

Standard & Poor's 500 (S&P 500)


RJNJ,t2

PriceS&P 500,t

RS&P 500,t3
825.88

0.46

-12.53%

735.09

-10.99%

2.

Mar 31, 2009

52.60

5.20%

797.87

8.54%

3.

Apr 30, 2009

52.36

-0.46%

872.81

9.39%

4.

May 31, 2009

55.16

6.28%

919.14

5.31%

5.

Jun 30, 2009

56.80

2.97%

919.32

0.02%

6.

Jul 31, 2009

60.89

7.20%

987.48

7.41%

7.

Aug 31, 2009

60.44

0.07%

1,020.62

3.36%

8.

Sep 30, 2009

60.89

0.74%

1,057.08

3.57%

9.

Oct 31, 2009

59.05

-3.02%

1,036.19

-1.98%

10.

Nov 30, 2009

62.84

7.25%

1,095.63

5.74%

11.

Dec 31, 2009

64.41

2.50%

1,115.10

1.78%

12.

Jan 31, 2010

62.86

-2.41%

1,073.87

-3.70%

13.

Feb 28, 2010

63.00

1.00%

1,104.49

2.85%

14.

Mar 31, 2010

65.20

3.49%

1,169.43

5.88%

15.

Apr 30, 2010

64.30

-1.38%

1,186.69

1.48%

16.

May 31, 2010

58.30

-8.49%

1,089.41

-8.20%

17.

Jun 30, 2010

59.06

1.30%

1,030.71

-5.39%

18.

Jul 31, 2010

58.09

-1.64%

1,101.60

6.88%

19.

Aug 31, 2010

57.02

-0.91%

1,049.33

-4.74%

20.

Sep 30, 2010

61.96

8.66%

1,141.20

8.76%

21.

Oct 31, 2010

63.74

2.87%

1,183.26

3.69%

22.

Nov 30, 2010

61.55

-2.59%

1,180.55

-0.23%

0.49

0.49

0.49

0.49

0.54

0.54

0.54

23.

Dec 31, 2010

61.85

0.49%

1,257.64

6.53%

24.

Jan 31, 2011

59.77

-3.36%

1,286.12

2.26%

25.

Feb 28, 2011

61.44

3.70%

1,327.22

3.20%

26.

Mar 31, 2011

59.25

-3.56%

1,325.83

-0.10%

27.

Apr 30, 2011

65.72

10.92%

1,363.61

2.85%

28.

May 31, 2011

67.29

3.26%

1,345.20

-1.35%

29.

Jun 30, 2011

66.52

-1.14%

1,320.64

-1.83%

30.

Jul 31, 2011

64.79

-2.60%

1,292.28

-2.15%

31.

Aug 31, 2011

65.80

2.44%

1,218.89

-5.68%

32.

Sep 30, 2011

63.69

-3.21%

1,131.42

-7.18%

33.

Oct 31, 2011

64.39

1.10%

1,253.30

10.77%

34.

Nov 30, 2011

64.72

1.40%

1,246.96

-0.51%

35.

Dec 31, 2011

65.58

1.33%

1,257.60

0.85%

36.

Jan 31, 2012

65.91

0.50%

1,312.41

4.36%

37.

Feb 29, 2012

65.08

-0.39%

1,365.68

4.06%

38.

Mar 31, 2012

65.96

1.35%

1,408.47

3.13%

39.

Apr 30, 2012

65.10

-1.30%

1,397.91

-0.75%

40.

May 31, 2012

62.43

-3.16%

1,310.33

-6.27%

41.

Jun 30, 2012

67.56

8.22%

1,362.16

3.96%

42.

Jul 31, 2012

69.22

2.46%

1,379.32

1.26%

43.

Aug 31, 2012

67.43

-1.70%

1,406.58

1.98%

0.54

0.57

0.57

0.57

0.57

0.61

0.61

44.

Sep 30, 2012

68.91

2.19%

1,440.67

2.42%

45.

Oct 31, 2012

70.82

2.77%

1,412.16

-1.98%

46.

Nov 30, 2012

69.73

-0.68%

1,416.18

0.28%

47.

Dec 31, 2012

70.10

0.53%

1,426.19

0.71%

48.

Jan 31, 2013

73.92

5.45%

1,498.11

5.04%

49.

Feb 28, 2013

76.11

3.79%

1,514.68

1.11%

50.

Mar 31, 2013

81.53

7.12%

1,569.19

3.60%

51.

Apr 30, 2013

85.23

4.54%

1,597.57

1.81%

52.

May 31, 2013

84.18

-0.46%

1,630.74

2.08%

53.

Jun 30, 2013

85.86

2.00%

1,606.28

-1.50%

54.

Jul 31, 2013

93.50

8.90%

1,685.73

4.95%

55.

Aug 31, 2013

86.41

-6.88%

1,632.97

-3.13%

56.

Sep 30, 2013

86.69

0.32%

1,681.55

2.97%

57.

Oct 31, 2013

92.61

6.83%

1,756.54

4.46%

58.

Nov 30, 2013

94.66

2.93%

1,805.81

2.80%

59.

Dec 31, 2013

91.59

-3.24%

1,848.36

2.36%

0.61

0.61

0.66

0.66

0.66

Average:

1.17%

1.47%

Standard Deviation:

4.30%

4.42%
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Data in USD $ per share of common stock, adjusted for splits and stock dividends.

Rate of return on common stock of JNJ during period t

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


VarianceJNJ

18.50

VarianceS&P 500

19.58

CovarianceJNJ, S&P 500

11.58

Correlation CoefficientJNJ, S&P 5001

0.61

JNJ2

0.59

JNJ3
Calculations

0.30

CovarianceJNJ, S&P 500 (Standard DeviationJNJ Standard DeviationS&P 500)


= 11.58 (4.30 4.42)

CovarianceJNJ, S&P 500 VarianceS&P 500


= 11.58 19.58

AverageJNJ JNJ AverageS&P 500


= 1.17 0.59 1.47
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Expected Rate of Return


Assumptions
Rate of return on LT Treasury Composite1

RF

Expected rate of return on market portfolio2

E(RM)

Systematic risk () of Johnson & Johnson's common stock

JNJ

2.68%
13.68%
0.59

Expected rate of return on Johnson & Johnson's common stock3 E(RJNJ) 9.18%
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).
Calculations
2

See Details
E(RJNJ) = RF + JNJ [E(RM) RF]
= 2.68% + 0.59 [13.68% 2.68%]
= 9.18%