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Investing in stocks in Ford, Johnson & Johnson, and Target

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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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 ...

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.