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Calculate the expected rate of return on investments

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Question - 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 $28,000; and investment Y had a market value of $69,000.  During the year, investment X generated cash flow of $2,100 and investment Y generated cash flow of $8,076. The current market values of investment X and Y are $29,869 and $69,000, respectively.

Required -

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?

Reference no: EM133109641

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