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Rate of return???Douglas? Keel, a financial analyst for Orange? Industries, wishes to estimate the rate of return...

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Finance

Rate of return???Douglas? Keel, a financialanalyst for Orange? Industries, wishes to estimate the rate ofreturn for two? similar-risk investments, X and Y. ? Douglas'sresearch indicates that the immediate past returns will serve asreasonable estimates of future returns. A year? earlier, investmentX had a market value of $27,000?; and investment Y had a marketvalue of $61,000. During the? year, investment X generated cashflow of $2,025and investment Y generated cash flow of $6,757. Thecurrent market values of investments X and Y are $28,818and$61,000?, respectively.

a.??Calculate the expected rate of return oninvestments X and Y using the most recent? year's data.

            Theexpected rate of return on investment X is __?% (Round to twodecimal places)

The expected rate of return on investment Y is __?% (Round totwo decimal places)

b.??Assuming that the two investments are equally? risky, whichone should Douglas? recommend? ? Why?

b.??Assuming that the two investments areequally? risky, which one should Douglas? recommend? ? Why?

Answer & Explanation Solved by verified expert
3.7 Ratings (308 Votes)
Investment X Market value Before one year Opening value 27000 Current Market value closing price 28818 Cash flows received 2025 Expected    See Answer
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