Assume Merck (MRK) just finished paying an annual divided of $1.80. You look up their beta and it equals 0.39, implying it's much less risky than the market portfolio. The current risk free rate equals 2.35%. Assume a market risk premium of 5%. Merck's current stock price is $58.81. Assuming investors expect Merck to grow at a constant rate in perpetuity, what is the growth rate expectation?

Now assume that you expect Merck to grow its dividends 3% in perpetuity. If you are really quite certain that you got it rick (and the current stock market got it wrong), what should you do? In other words, do you perceive Merck's current stock price to indicate that the market has over or under-valued the company?