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 $26,000; and investment Y had a market value of $50,000. During the year, investment X generated cash flow of $1,950 and investment Y generated cash flow of $6,868. The current market values of investments X and Y are $26,652 and $50,000, 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?

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Part 1

a.The expected rate of return on investment X is ___%. (Round to two decimal places.)