Q3) You are considering investing in stock S and you want to know how stock S is related to the market portfolio M. Given your research, you discovered the following information:

	Expected Return	Standard Deviation
Stock (S)	15%	25%
Market (M)	12%	20%
Risk-free	2%
Correlation of S and M	40%

1. What is the exposure of stock S to market risk? (3 points)
2. Discuss whether according to the CAPM, stock S is overvalued, undervalued or fairly valued. (2 points)
3. What is the level of systematic and idiosyncratic risk for stock S? (5 points)