problem: An understanding of the concepts of complete markets & spanning are essential for an understanding of the literature on unanimity & several other topics covered in this course.
[A] Find the difference between spanning and a complete market? If a particular security is spanned, does that mean market is complete? If all securities are spanned by other securities, is market complete?
[B] What assumption concerning market completeness and/or spanning is made by Fisher in his separation theorem? Find what assumption does DeAngelo make in his unanimity theorem?
[C] Is DeAngelo’s assumption concerning completeness and/or spanning necessary for unanimity?
[D] Is it likely that DeAngelo’s assumption concerning completeness and/or spanning is satisfied in practice? describe.
[E] If we modify DeAngelo’s assumption of no exchange costs in such a way that investors will face different borrowing and lending rates, will capital structure decisions be unanimously supported?