Douglas? Keel, a financial analyst for Orange? Industries, wishes to estimate the rate of return for two? similar-risk investments, X and Y. ? Douglas's research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year? earlier, investment X had a market value of ?$21,000?; and investment Y had a market value of ?$45,000. During the? year, investment X generated cash flow of ?$1,575 and investment Y generated cash flow of $ 5,993. The current market values of investments X and Y are ?$21,703 and ?$45,000?, respectively.
a. Calculate the expected rate of return on investments X and Y using the most recent? year's data.
b. Assuming that the two investments are equally? risky, which one should Douglas? recommend? ? Why?