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

A zero-investment portfolio with a positive expected return is indicative of a risk-free arbitrage opportunity, where an investor can make a profit with no net investment and no risk. This situation arises when there is a mispricing of assets that the investor can exploit.

A Zero-Investment Portfolio with a Positive Expected Return Arises When