Answer: 0.28

## Explanation The portfolio variance is calculated using the formula: $$\sigma_p^2 = w_X^2 \sigma_X^2 + w_Z^2 \sigma_Z^2 + 2w_Xw_Z\text{Cov}(X,Z)$$ Where: - $w_X = 0.35$ (weight of Asset X) - $w_Z = 0.65$ (weight of Asset Z) - $\sigma_X^2 = 0.1225$ (variance of Asset X) - $\sigma_Z^2 = 0.4225$ (variance of Asset Z) - $\text{Cov}(X,Z) = 0.19$ (covariance between X and Z) **Step-by-step calculation:** 1. $w_X^2 \sigma_X^2 = (0.35)^2 \times 0.1225 = 0.1225 \times 0.1225 = 0.01500625$ 2. $w_Z^2 \sigma_Z^2 = (0.65)^2 \times 0.4225 = 0.4225 \times 0.4225 = 0.17850625$ 3. $2w_Xw_Z\text{Cov}(X,Z) = 2 \times 0.35 \times 0.65 \times 0.19 = 0.08645$ 4. **Total portfolio variance:** $\sigma_p^2 = 0.01500625 + 0.17850625 + 0.08645 = 0.2799625 \approx 0.2800$ Therefore, the portfolio variance is **0.28**, which corresponds to option A.

Author: Tanishq Prabhu