You have a well-diversified portfolio P. You believe that the return of P is exposed to 2 systematic risk factors, market risk (M) and exchange rate risk (X). The sensitivity of Ps return to M is 1.2 and to X is 0.7. You have estimated the expected excess return of factors M and X are 7% and 3% respectively.

1. Lets assume that there is portfolio PM that has unit sensitivity to factor M and zero sensitivity to factor X. Its expected excess return is 7%. Lets also assume that there is portfolio PX that has unit sensitivity to factor X and zero sensitivity to factor M. Its expected excess return is 3%. I combine P, PM, PX and risk-free with weights 1, -1.2, -0.7 and 0.9 respectively, and make portfolio A. Which statement is FALSE about A?

   		A is a zero initial investment portfolio.
   		A has 0 sesitivity (beta) to factor M.
   		A has 0% expected return.
   		A is an arbitrage portfolio.