Can someone please explained to me in details how did we decide that the stock is underpriced?

I'm studying for my final and I need to understand why we got it not just know the answer.

Thank you,

49. The market rate of return is 11 percent and the risk-free rate of return is 3 percent. Lexant stock has 3 percent less systematic risk than the market and has an actual return of 12 percent. This stock: & is underpriced