A zero-investment portfolio with a positive expected return arises when A) an investor has downside risk only. B) the law of prices is not violated. C) the opportunity set is not tangent to the capital-allocation line. D) a risk-free arbitrage opportunity exists.

Question

Quizplus · Accepted Answer

When an investor can create a zero-investment portfolio (by using none of the investor's own funds) with a possibility of a positive profit, a risk-free arbitrage opportunity exists.

A Zero-Investment Portfolio with a Positive Expected Return Arises