Would you be so kind to elaborate why the security with the expected return of 15% and required return of 13% (based on SML) is considered to be undervalued?

Suppose that the security is selling at $13/share, and has an expected return of 15%, or $1.95.

The required rate of return is only 13%, which would be that same return of $1.95 on a share price of $15.

So the security is undervalued by $2/share.

another way to think about thisâ€¦

rate of return would be used to discount to arrive at the pv

if share cost 1$.

At 13% required return - pv = 1/1.13 which would be more than 1/1.15

so @ 15% it is undervalued.