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All else equal, firms with higher leverage (D/E ratio) tend to have higher betas. However, when firms are heavily levered (near the zone of insolvency
All else equal, firms with higher leverage (D/E ratio) tend to have higher betas. However, when firms are heavily levered (near the zone of insolvency or bankruptcy), their betas tend to drop significantly. Without mentioning anything about the equation for beta, briefly explain why this phenomenon might occur.
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