posted by Sally on .
You are considering buying 100 shares of TEXAS INC common stock. The common stock is expected to pay a dividend of $2.50 a year from today; the growth rate of the dividends is 8% for two years, then level off to a constant rate of 5% per year. The correlation between TEXAS Inc and the market is .75; the variance of the market’s return is expected to be 20% and the standard deviation of Texas Inc returns is 13%. It is also estimated that the return on the TSX/S&P is 7% and the return on government of Canada T-Bills is 3%. Should you buy the shares if the current market price of the company common stock is $35.00? Show your work.