Which of the following is one of the characteristics of perfect capital markets?
A)All investors hold the efficient portfolio of assets.
B)There are no taxes,but there may be transaction costs associated with security trading.
C)A firm's financing decisions may change the cash flows generated by its investments.
D)Investors and firms can trade the same set of securities at competitive market prices equal to the present value (PV)of their future cash flows.
E)No market participants engage in illegal behaviour.

Question

Quizplus · Accepted Answer

Perfect capital markets have the feature of investors and firms trading the same set of securities at competitive market prices equal to the present value (PV) of their future cash flows. The other options are not characteristics of perfect capital markets. Option A describes the efficient market hypothesis, Option B describes a tax-efficient market, Option C concerns financing decisions impact on cash flows, and Option E describes an idealized market environment.

Which of the Following Is One of the Characteristics of Perfect