Asset A has a mean return of 0.03 and a standard deviation of 0.04, while asset B has a mean return of 0.06 and standard deviation of 0.08. Their returns are perfectly negatively correlated (correlation coefficient of -1).

a. Assuming absence of arbitrage, what must the risk-free rate be?

b. Suppose that in fact the risk-free rate were 0.02. Describe how one would exploit the arbitrage situation (what would you buy, and what would you sell?)