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Expected rate of return on both stocks

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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?

Reference no: EM131835811

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