The formula for the expected return on a stock is:
Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
We can rearrange this formula to solve for the risk-free rate:
Risk-Free Rate = (Expected Return - Beta * Market Return) / (1 - Beta)
Plugging in the given values:
Risk-Free Rate = (0.14 - 1.43 * 0.12) / (1 - 1.43) Risk-Free Rate = (0.14 - 0.1716) / (-0.43) Risk-Free Rate = 0.0316 / (-0.43) Risk-Free Rate ≈ -0.0735
Since a negative risk-free rate does not make sense, we can conclude that there may be an error in the calculations or the given information. None of the answer choices provided are correct.