Here is a helpful hint for parts 1D and 2C of problem set 7. As we showed last week in class, the weights for the minimum variance two-asset portfolio can be found by applying the following ratio in order to determine w1; upon calculating w1, then w2 = 1 – w1. (source: p. 7 of http://fin4335.garven.com/spring2019/lecture12.pdf):
Furthermore, in cases where correlation is equal to either -1 or 1, the weighting scheme shown above guarantees that the minimum variance combination is riskless. Therefore, if the expected return on a riskless two-asset portfolio is either greater or less than the expected return on a riskless asset, there’d be an arbitrage opportunity along the lines of what we showed in class on Tuesday pertaining to mispriced forward contracts, where we sold forward and bought the replicating portfolio when the forward was too expensive, and we bought forward and sold the replicating portfolio when the forward was too cheap.