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What is a characteristic line

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Question - You have been hired at the investment firm of Bowers & Noon. One of its clients doesn't understand the value of diversification or why stocks with the biggest standard deviations don't always have the highest expected returns. Your assignment is to address the client's concerns by showing the client how to answer the following questions:

What is a characteristic line? How is this line used to estimate a stock's beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.

Reference no: EM132895825

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