The formula for the approximate expected return of an investment can look intimidating, but it's really just a function of three things: (1) average annual current income, (2) average capital gains, and (3) the average value of the investment. Based on the information in the table, compute each of these values for the two stocks over a 3-year period and enter the values into the bottom half of the table.

	Stock 1	Stock 2
Average annual dividends (over three years)	$1.25	$2.95
Current stock price	$70	$116
Projected future stock price (in three years)	$82	$146
Average annual current income (CI)
Average annual capital gains (CG)
Average value of the investment (VI)

Next, derive the correct formula for approximate expected return by correctly arranging these three variables in the equation that follows.

Approximate Expected Return Approximate Expected Return

=

/

Using this formula, you can see that the approximate expected return for Stock 1 = __________ (percent) 

The approximate expected return for Stock 2 =  __________  .

Answer rating: 100% (QA)

To calculate the values of average annual current income CI average capital gains CG and the average ... View the full answer