Forecasting stock value

Understanding the Returns From Investing

When buying stock, you can expect to earn money through future current income $($from

and future capital

appreciation $($from

$.$ Together, your total earnings from a given investment can be expressed in terms of the

approximate expected return. This value makes it easier for you to compare investment options.

Understanding the Approximate Expected Return Equation

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.

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