Q: Two assets: A (10%, σ 15%), B (6%, σ 8%), correlation 0.2. Find 50-50 portfolio risk. σ_p² = w₁²σ₁²+w₂²σ₂²+2w₁w₂ρσ₁σ₂. = 0.25(0.0225)+0.25(0.0064)+2(0.25)(0.2)(0.15)(0.08). = 0.005625+0.0016+0.0012 = 0.008425. σ_p = √0.008425 ≈ 9.18%. Less than weighted avg (11.5%): diversification! E[R] = 8%!