PLEASE SOLVE AND SHOW ALL WORK, THANKS 2. Treasury-Bill Auction In a Treasury au

Question

PLEASE SOLVE AND SHOW ALL WORK, THANKS

2. Treasury-Bill Auction In a Treasury auction of S1.3 billion par value 91-day T-bills, the following bids were submitted Bidder Bid Amount Price S500 million $0.9938 S750 million $0.99 11 Sl 5 billion $0.9914 $0.9937 si billion S300 million $0.9939 a. If only these competitive bids are received, who will receive T-bills, in what quantity, and at what price? b. If the Treasury also received S500 million in non-competitive bids, who will receive T-bills, in what quantity, and at what price?

Explanation / Answer

Solution:

a. If there are only competitive bids then the auction will settle at the highest price which clears the auction amount. This includes bidders 1, 4 and 5. The winning price will be $0.9937.

b. If there is an additional $500m in non-competitive bids then only $0.8 billion will be auctioned competitively. This means that bidders 1, 4& 5 will win the auction. All bills will be settled at a price of $0.9937.

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