Question
please show formulas P81 Rate of return Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk
please show formulas
P81 Rate of returnDouglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Douglass 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 $20,000, and investment Y had a market value of $55,000. During the year, investment X generated cash flow of $1,500, and investment Y generated cash flow of $6,800. The current market values of investments X and Y are $21,000 and $55,000, respectively.
Calculate the expected rate of return on investments X and Y using the most recent years data.
Assuming that the two investments are equally risky, which one should Douglas recommend? Why?
| Problem P8-1: |
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| Vaue of Investment X 1 year ago = | $20,000 |
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| Vaue of Investment Y 1 year ago = | $55,000 |
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| Investment X cash flow = | $1,500 |
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| Investment Y cash flow = | $6,800 | |
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| Current Market Value of Investment X = | $21,000 | |
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| Current Market Value of Investment Y = | $55,000 | |
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| Rate of return on Investment X = |
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| Rate of return on Investment Y = |
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| Part b: | Assuming both investments are equally risky, which | ||
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| should he recommend? | ||
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Handbook Of Asset And Liability Management Volume 2
Authors: S. A. Zenios, W. T. Ziemba
1st Edition
0444528024, 978-0444528025
