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?