What is the average rate of return per unit of risk?

Question

The rate of return of certain investments increases as the risk factor of the investment increases. An investment with a risk factor of 2 has a rate of return of 5.0%. An investment with a risk factor of 19 has a rate of return of 14.0%. What is the average rate of return per unit of risk?

Answer 1

The average rate of return per unit of risk is the slope of the linear equation where the dependent variable is rate if return and the independent variable is the unit of risk.

 

In order to find the slope, we take the change in y divided by the change in x.

 

The change in y is 14% less 5% or 9%

 

The change in x is 19 less 2 or 17

 

average rate of return per unit of risk becomes 9%/17

 

Feel free to divide it out, I didn't have a calculator close