Question 3:

Today you bought 100 shares of Merck (MRK) at $100 per share. A year from now MRK

will pay a dividend of $2 per share for sure. The price of MRK a year from now is uncertain

and depends on the state of the economy. A year from now the economy will either be in a

recession, a state of "normal" growth, or a boom with probabilities of 30%, 40%, and 30%

respectively. After analyzing MRK you determine that the price of MRK a year from now

in these various states of the economy will be:

What is the expected return over the next year to your investment in MRK? What is the

standard deviation of that return?