A capital market is ideal when:

All of these

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Financial institutions are sufficiently developed

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Finance is available at reasonable cost

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Capital is most productively allocated

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Solution

The correct option is A
All of these

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

1: Capital markets are frictionless

2: All market participants share homogenous expectation, value relevant 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 firm’s investment program is fixed and known.

5: The firm’s financing is fixed. Once chosen, the firm’s capital structure is fixed.

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