I am trying to find a example showing the breakdown of the CAPM formula.?

Answer 1

Taken in whole from Brigham, Gapenski, Ehrhardt’s Financial Management: Theory and Practice, 9th Edition page 379:

To estimate the cost of common stock using CAPM:

Step 1: Estimate the risk-free rate, kRF, generally taken to be the yield on a long-term U.S. Treasury bond.

Step 2: Estimate the stock’s beta coefficient, bi , use it as an index of the stock’s risks. The i signifies the ith company’s beta.

Step 3: Estimate the current expected rate of return on the market, or on “average” stock, km. (km, the expected market return, sum of the current risk-free rate and the market risk premium)

Step 4: Substitute the preceding values into the CAP equation to estimate the required rate of return on the stock in question:

kS = kRF +( km - kRF) bi

kS = required rate of return
kRF = risk free rate
km = expected market return
( km - kRF) = risk premium
bi = tendency to move up and down with market. b=1.0 perfectly correlated with market. Market up 10% stock up 10% . b=1.1 market up 10% stock up 11%. B=0.9 market up 10% stock up 9%. b tells us how risky compared to market.

Example:
NCC Company
kRF = 8%
km = 14%
bi = 1.1

kS = 8% +( 14% - 8%) 1.1
= 8% +6.6%
=14.6%

Let me know if you need further explanation or looking for something more.

Answer 2

Capm Formula Example

Answer 3

Fama and French have a paper examining the empirical evidence with references to breakdowns, but I can't find a free version on the web. I know one of the problems arise from the different behavior of small and large stocks. Here is abstract. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=440920

Answer 4

If you could be more specific, that'd be helpful. What exactly are you looking for?