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.

Stock A's expected return at the current price level is 7.5%.

Stock A's expected return in equilibrium is 5%.

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

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