Investing in stocks in Ford, Johnson & Johnson, and Target
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I have chosen the following 3 companies to invest stock in
Ford Motors (Automotive)
Johnson & Johnson (Drug company)
Target (Retail Chain)
I need help finding the current yield of the 10-year treasury bond and calculating the required rate of return for each of them. I need to be able to show my work and explain how the risk affects your expectations. In the end I want to earn 15% in the market despite the market risks.
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Solution Summary
This solution illustrates how to calculate the required rate of return of three companies: Ford Motor (automotive), Johnson & Johnson (drug company), and Target (retail). The solution uses the CAPM model to calculate the required rates of return.
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Dear Student:
We find the 10-year treasury bond yield at http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Step 1. Look at the table for a 10 year Treasury Yield = 1.64% (10/1/2012), which we can use as the risk-free rate.
We will be using the Capital Asset Pricing Model = CAPM=r_rf+beta(r_M-r_rf ) , where r_rf = risk-free rate, beta = beta of the company, and r_M = market return.
Step 2. Next, we need to look for the rate of the market, or market return. Go to ...
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