In this video, we explore how to determine if a stock is undervalued, fairly valued, or overvalued using the Security Market Line (SML) and the Capital Asset Pricing Model (CAPM). The video breaks down the key concepts and formulas, including how to calculate the required return (k) and compare it to the expected market return (Erm). If k is higher than Erm, the stock is undervalued; if k equals Erm, the stock is fairly valued; and if k is lower than Erm, the stock is overpriced. We also go over practical examples and exam-style questions to solidify your understanding.