Competitive Bids and T Bills
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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?
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Solution Summary
Sort the bidders in descending price order
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Hello!
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 ...
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