Douglas Keel, a financial analyst for Orange Industries

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 $20,000; investment Y had a market value of $55,000. During the year, investment X generated cash flow of $1,500 and investment Y generated cash flow of $6,800. The current market values of investments X and Y are $21,000 and $55,000, 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?

  • Posted: 5 years ago
Douglas Keel, a financial analyst for Orange Industries

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