Expected Return vs CAPM Return

Going through the 2012 CFAI Mock AM, #24 I think the answer is wrong, but whatver…

If the expected return on an asset is 12%, but CAPM says it should be 14%, does that mean the asset is overvalued or undervalued?

I would say overvalued, since you should be getting 14% but your only getting 12%, so its not worth it, hence overvalued. Is this right?

Yes, under the SML = overvalued. Over the SML = undervalued.

Think it this way, we take for granted the CAPM is always right, and anything lower than what it says is bad. Am I right on this?

CAPM is what return you require per risk. If expected return is lower, the price is higher than you’re ‘intrinisic value.’ So you pass and find something else

yes answer in 2012 seems to be wrong for this question. I ran into the same issue.