Question

Building a zero-investment portfolio will always involve:

(a) Only long positions
(b) Only short positions
(c) An unknown mixture of short and long positions
(d) Equal investments in a short and a long position

Answer 1

A zero-investment portfolio can involve a mixture of short and long positions. The goal is to balance gains and losses so that the overall value remains the same.

Step-by-step explanation:

A zero-investment portfolio can involve a mixture of short and long positions. The goal of a zero-investment portfolio is to balance the gains and losses so that the overall value remains the same.

It can include both long positions, which involve buying stocks or other assets with the expectation of their value increasing, and short positions, which involve selling borrowed assets with the expectation of their value decreasing.

For example, an investor could have a long position in one stock and a short position in another stock.

If the increase in value of the long position is equal to the decrease in value of the short position, the overall value of the portfolio remains the same.

The answer to the question is option (c) An unknown mixture of short and long positions.