Rate of return 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 $23,000; and investment Y had a market value of $60,000. During the year, investment X generated cash flow of $1,725 and investment Y generated cash flow of $6,328. The current market values of investments X and Y are $23,849 and $60,000, 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?