Suppose two factors are identified for the u. s. economy: the growth rate of industrial production, ip, and the inflation rate, ir. ip is expected to be 4% and ir 6%. a stock with a beta of 1.0 on ip and .4 on ir currently is expected to provide a rate of return of 14%. if industrial production actually grows by 5%, while the inflation rate turns out to be 7%, what is your best guess for the rate of return on the stock?

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 $27 comma 000; and investment y had a market value of $46 comma 000. during the year, investment x generated cash flow of $2 comma 025 and investment y generated cash flow of $ 6 comma 770. the current market values of investments x and y are $28 comma 582 and $46 comma 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? why?