A capital market is ideal when:
A Financial institutions are sufficiently developed B Capital is most productively allocated C Finance is available at reasonable cost 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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