A dividend on the common stock of Baker Company in the amount of $4.77 was just paid. Dividends are expected to grow at a rate of 3%, forever. The stock has a correlation with the overall market of .6. The standard deviation of the stock’s returns is 0.45 and the standard deviation of the overall market’s returns is 0.4. If the yield on Treasury Bills is 2%, and the expected return on the market is 8%.

1. What is the beta of the stock?
2. According to CAPM, what is the required return on the stock?
3. What would you be willing to pay for the stock today?
4. d) If you buy the stock at the current market price of $175, are you earning more or less than the required return? Briefly explain.