A capital market is ideal when: (2024)

A capital market is ideal when:

A

Financial institutions are sufficiently developed

B

Capital is most productively allocated

D

All of these

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Solution

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An ideal capital market is defined by a set of five assumptions.

1: Capital markets are friction-less.

2: All market participants share hom*ogenous expectation, valuerelevant information is costlessly available to all market participants.

3: All market participants are atomistic. No single market participant can affect the market price of a security via trades.

4: The firms investment program is fixed and known.

5: The firms financing is fixed. Once chosen, the firms capital structure is fixed.

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A capital market is ideal when: (2024)
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