Response to the following problem:
1. Is it true that the "flatter," or more nearly horizontal, the demand curve for a particular firm's stock, and the less important investors regard the signaling effect of the offering, the more important the role of investment banks when the company sells a new issue of stock?
2. The SEC attempts to protect investors who are purchasing newly issued securities by making sure that the information put out by a company and its investment banks is correct and is not misleading. However, the SEC does not provide an opinion about the real value of the securities; hence, an investor might pay too much for some new stock and consequently lose heavily. Do you think the SEC should, as a part of every new stock or bond offering, render an opinion to investors on the proper value of the securities being offered? Explain.