Rate of return Douglas Keol, a financial analyst for Orange Industries, wishes to estimate the rate of return for two 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 $26,000, and investment Y had a market value of $40,000. During the year, investment X generated cash flow of $1, 950 and investment Y generated cash flow of $4, 708. The current market values of investments X and Y are $27,001 and $40,000, 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 equality risky, which one should Douglas recommend? Why?
a. The expected rate of return on investment X is %. (Round to two decimal places.)