In a treasury auction of $2.5 billion par value 91 day Tbills, the following bids were submitted:
bidder Bid amount Price
1 500 mill $.9940
2 750 mill $.9901
3 1.5 bill $.9925
4 1 bill $.9936
5 600 mill $.9939
If only these competitive bids are received, who will receive T bills, in what quantity and at what price? if the treasury also received 750 mill in non competitive bids who will receive T bills in what quantity and at what price?
Let's first sort the bidders in descending price order (which is equivalent to an increasing yield on the bills). Clearly, the Treasury prefers the bidders that make the highest price bid; or equivalently, who demand a lower yield for their money:
Bidder Price Bid Amount (mill) Cumulative Bid Amount
1 0.9940 500 500
5 0.9939 600 1100
4 0.9936 ...
Sort the bidders in descending price order