The formula for the approximate expected return of an investment can look intimidating, but its 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)	$1.20	$2.90
Current stock price	$60	$120
Projected future stock price (in three years)	$81	$150
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.

Approx expected rate of return is calculated how

Approximate Expected ReturnApproximate Expected Return

= =

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