Medium

Finance

You have two assets. We will call them asset $1$ and asset $2$. Asset $1$ has an expected return of $4\%$ and a variance of $15\%$. Asset $2$ has an expected return of $2\%$ and a variance of $4\%$. They have a correlation $\rho = -1$.
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We want to create a risk-free portfolio using assets $1$ and $2$. We will denote $w_1$ and $w_2$ as the weights of asset $1$ and $2$ in the portfolio respectively. Assume that $w_1 + w_2 = 1$. What is $w_1$? Give the answer to $2$ decimal points.

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Hint