Douglas Keel, a financial analyst for Orange Industries,wishes to estimate the rate of return for two similar-riskinvestments, 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 $22,000;

and investment Y had a market value of $57,000.

During the year, investment X generated cash flow of $1,650 and investment Y generated cash flow of $8,336.

The current market values of investments X and Y are $22,837 and $57,000,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?