The formula for the approximate yield of an investment can look intimidating, but it's really just a function of three things: (1) average 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 $1.35 $3.05 $106 $55 $67 $136 Expected average annual dividends (2012-2014) Current stock price Expected future stock price (2014) Average current income (CI) Average capital gains (CG) Average value of the investment (VI) $ $ $ $ $ $ Next, derive the correct formula for approximate yield by correctly arranging these three variables in the equation that follows. 23-year period and enter the values into the bottom half of the table. Stock 1 Stock 2 $1.35 $3.05 $55 $106 $136 $67 Expected average annual dividends (2012-2014) Current stock price Expected future stock price (2014) Average current income (CI) Average capital gains (CG) Average value of the investment (VI) $ $ $ $ 0.02% 10.79% Next, derive the correct formula for approximate yield by correctly arrang three variables in the equation that follows. 0.07% 15.59% Approximate Yield = Avg. CI + Avg CG Avg. VI 8.77% Using this formula, you can see that the approximate yield for Stock 1 is and the approximate yield for Stock 2 is The formula for the approximate yield of an investment can look intimidating, but it's really just a function of three things: (1) average 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 2 Stock 1 $1.35 $55 Expected average annual dividends (2012-2014) Current stock price Expected future stock price (2014) Average current income (CT) Average capital gains (CG) Average value of the investment (VI) $3.05 $106 $136 $67 $ $ $ $ $ $ 8.77% Next, derive the correct formula for approximate yield by correctly arranging these three variables in the equation that follows. 12.41% 0.08% Approximate Yield Avg. Cl + Avg CG Avg. VI 10.79% 0.03% Using this formula, you can see that the approximate yleld for Stock 1 is and the approximate yield for Stock 2 is True or False: For these investments to be equally attractive, Stock 1 must carry lower risk than Stock 2. False
