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.

What is Stock A's expected return at the current price level?

Select one:

a. 5%

b. 6%

c. 7.5%

d. 8%

Continued with previous question.

According to the CAPM, what should be stock's A expected return in equilibrium?

Select one:

a. 5%

b. 6%

c. 7.5%

d. 8%

Continued with previous question.

A's Treynor's ratio at the current price level is _____ %.

Continued with previous question. Is stock A fairly priced, overpriced or underpriced? Briefly explain how you come to this conclusion.

Answer: ____