Suppose the risk-free yield is 2% and the expected return for the market is 8%.

Stock A with beta= 0.5 is currently selling at $40. The stock is expected to pay a dividend of $1.5 and increase to $41.5 a share next year.

a.) What is Stock A's expected return at the current price level? (in %)

b.) According to the CAPM, what should be stock's A expected return in equilibrium? (in %)

c.) A's Treynor's ratio at the current price level is? (in %)

d.) Is stock A fairly priced, overpriced or underpriced? (explain briefly)