The following information is available for the stock of Scranton Co.:

• The expected oneyear holding period return is 25%.
• The stock price expected after one year is $37.50.
• Dividend payout ratio = 0%.
• The stock's covariance with the market is 0.08.
• The standard deviation of the market portfolio is 15%.
• The riskfree rate is 6%.
• The expected market return is 10%.

As the SML suggests, Scranton, Co. is

Overvalued by $1.43

Undervalued by $1.75

Undervalued by $1.43