Answer: 0.048

**Explanation:** For a two-asset portfolio, the variance is calculated using the formula: \[ \sigma_p^2 = w_1^2 \sigma_1^2 + w_2^2 \sigma_2^2 + 2w_1w_2\rho_{12}\sigma_1\sigma_2 \] Where: - \(w_1\) and \(w_2\) are the weights of Asset 1 and Asset 2, respectively (both 0.5 for an equally weighted portfolio). - \(\sigma_1^2\) and \(\sigma_2^2\) are the variances of Asset 1 and Asset 2, respectively. - \(\rho_{12}\) is the correlation between the returns of the two assets. Plugging in the values: \[ \sigma_p^2 = (0.5)^2(0.05) + (0.5)^2(0.06) + 2(0.5)(0.5)(0.75)\sqrt{0.05}\sqrt{0.06} \] Simplifying: \[ \sigma_p^2 = 0.0125 + 0.015 + 0.0205396 = 0.04804 \approx 0.048 \] **Option A (0.038)** is incorrect because it omits the doubling of the covariance term. **Option C (0.055)** is incorrect as it represents the weighted average of the variances, which is not applicable here since the correlation is not 1.

Author: LeetQuiz Editorial Team