What is an Opportunity Line?

Alexis W.
Alexis W.
Man climbing a rope
Man climbing a rope

In investment and finance terms, an opportunity line refers to the given slope on a projected graph showing the possible return on an investment opportunity. A return on investment is often projected using the cumulative value of all of the assets related to the potential investment. Also referred to as an investment opportunity set, the opportunity line is used to put a visual description on the amount of risk an investor has accumulated through different types of lending and borrowing in his or her financial history, and to show the potential risk involved with any new investment opportunities.

An opportunity line also shows an investor or investment firm a portfolio of different investments he may be able to enter into according to his amount of available financing through asset equity or savings accrued. These potential investment opportunity sets include graphs with the visible opportunity lines, demonstrating the risk versus reward associated with each potential investment portfolio. The opportunity sets also include the possible costs involved with making the investment, the projected amount of profit or return the investment could yield over a determined amount of time, and details on whether or not the potential investor would have to add the risk of borrowing funds from an outside source in order to make the initial investment.

When an individual is a high-dollar investor and considering buying into a company or opportunity, a presentation for the particular investment often is made in order to show the potential investor the amount of risk he may be taking by entering into an investment agreement. In most cases, the risk associated with making an investment using borrowed funds is much higher because at that point, the investor becomes responsible for the amount of money he borrowed in order to make the investment. This borrowed money, in addition to any personal funds, would be lost if the investment were to prove to be a failure. All of these factors are presented as part of an opportunity line.

The opportunity line, thus, is used as an immediate means of showing an investor his current assets and investments, while at the same time showing him the amount of risk associated with adding a new investment to his current portfolio. Most investment firms and private investors rely on these opportunity lines to determine whether or not they should consider taking the risk of adding the presented investment to their existing portfolio. Opportunity lines are a shorthand and simple visual way of assessing information quickly to make a decision.

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