there is no violation of the law of one price. Nevertheless, the equally weighted portfolio will fare better under any circum- stances; thus any investor, no matter how risk averse, can take advantage of this perfect dominance. Investors will take a short position in Dreck and use the proceeds to purchase the equally weighted portfolio.1 Let us see how it would work. Suppose we sell short 300,000 shares of Dreck and use the $3 million proceeds to buy 100,000 shares each of Apex, Bull, and Crush. The dollar profits in each of the four sce- narios will be as follows:     High Real Interest Rates Real Interest Rates   Dollar In vestment High Inflation Inflation High Inflation Inflation   1,000,000 $-200,000 200,000 400,000 600,000 Bull 1,000,000 700,000 300,000 -200,000 1,000,000 900,000 -200,000 -100,000 700,000 Dreck -3,000,000 -450,000 -690,000 -450,000 -1,080,000 olio 250,000 10,000 150,000 20,000     The first column verifies that the net investment is zero. Yet our portfolio yields a posi- tive profit in any scenario. This is a money machine. Investors will want to take an infinite     1 Short selling is discussed in Chapter 3. III. Equilibrium In Capital Markets 11. Arbitrage Pricing Theory The McGraw−Hill Companies, 2001           CHAPTER 11 Arbitrage Pricing Theory 323     position in such a portfolio because larger positions entail no risk of losses, yet yield ever- growing profits. In principle, even a single investor would take such