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

question 20

Multiple Choice

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.

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Definitions:

Interest Expense

Interest Expense is the cost incurred by an entity for borrowed funds, which can include loans, bonds, or lines of credit, over a specific period.

Earnings Before Interest and Taxes

An indicator of a company's profitability, calculated as revenue minus expenses excluding tax and interest.

Debt Ratio

A financial ratio that measures the extent of a company’s leverage, calculated by dividing total liabilities by total assets.

Capital Structure

The mixture of debt and equity that a company uses to finance its operations and growth.