2. The Spanish state wants to carry out next Tuesday, that is to say tomorrow a

Question

2. The Spanish state wants to carry out next Tuesday, that is to say tomorrow a auction of letters to 12 months. For the occasion decides to issue 70000 million euros. Receive for one part 18,000 million non- competitive offer. For its part, the competitive offers it receives from the different economic agents are grouped as follows: 11 billion to 3% 24,000 million to 3.05% 5 billion to 3.08% 18 billion to 3.1% and 22,000 million to 3.11% Calculate the average and marginal rate of the auction, indicating in each case to what type the Spanish Treasury will pay the bill (if applicable)

Explanation / Answer

Total Auction size = Euros 70,000 million = Euros 70 billions

Lowest interest rate offer will be selected 1st. Offers will be selected in the order of interest rates in ascending order.

Average Cost = (11x3.00 + 24x3.05 + 5x3.08 + 18x3.10 + 12x3.11) / 70 = 3.067%

Marginal rate is rate for incremental amount to be issued = 3.11%.

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Preference Interest Rate Offer Amount (Euro Bn) cummulative Amount (Euro Bn) Max Amount that can be selected (upto 70 bn) 1 3.00% 11 11 11 2 3.05% 24 35 24 3 3.08% 5 40 5 4 3.10% 18 58 18 5 3.11% 22 80 12 Total 70

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