Question: HMA, Universal, and the market have had the following returns over….
Please include formulas!
HMA, Universal, and the market have had the following returns over the past four years:
| Year | Market | HMA | Universal |
| 1 | 11% | 10% | 12% |
| 2 | 7% | 4% | -3% |
| 3 | 17% | 12% | 21% |
| 4 | -3% | -2% | -5% |
The risk-free rate is 7 percent. The market risk premium is 5 percent. The expected rate of return on both stocks is 12 percent. Which stock would you purchase?
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