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 $18,000, and investment Y had a market value of $48,000. During the year, investment X generated cash flow of $1, 350 and investment Y generated cash flow of $6, 673. The current market values of investments X and Y are $19, 285 and $48,000, respectively.
a. Calculate the expected rate of return on investments X and Y using the most recent years data.
b. Assuming that the two investments are equally risky. Which one should Douglas recommend? Why?
a. The expected rate of return on investment X is % (Round to two decimal places.)