ch 8 question 1

Rate of return Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the nate of retum for two similar-risk investments, X and Y. Douglas's research indicates that the immediate past retums will serve as reasonable estimates of future returns. A year earlier, investment X had a market value of $12,000, and investment Y had a market value of $67,000. During the year, investment X generated cash flow of 5900 and investment Y generated cash flow of $7,755. The current market values of investments X and Y are $12,809 and $67,000, 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? a. The expected rate of return on investment X is % (Round to two decimal places.)