With perfect capital market assumption, we learned the Modigliani and Miller theorem, and choosing different financial structures no longer affects a firm’s value. It sounds very unrealistic (but soon, we will learn how to value firms with market imperfection), so every student might have some doubts about it. However, in every economics textbook, we saw this particularly unrealistic assumption for all the models. Again, I raise a question for all learners in this class: Why do we need to learn the perfect capital market?

With perfect capital market assumption, we learned the Modigliani and Miller theorem, and choosing different financial structures no longer affects a firm’s value. It sounds very unrealistic (but soon, we will learn how to value firms with market imperfection), so every student might have some doubts about it. However, in every economics textbook, we saw this particularly unrealistic assumption for all the models. Again, I raise a question for all learners in this class: Why do we need to learn the perfect capital market?