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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 $27,000; investment Y had a market value of $49,000. During the year, investment X generated cash flow of $2025 and investment Y generated cash flow of 5848The current market values of investments X and Y are $28723and $49000, 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?

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Financial Management, Finance

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