The Treasury plans to issue $100 million of 52-day Treasury Bills using a Dutch auction system. They received $55 million in non-competitive bids. They also received the following competitive bids: Broker-dealer A bids $40,000,000 at 11.70% Broker-dealer B bids $14,000,000 at 11.50% Broker-dealer C bids $18,000,000 at 10.80% Broker-dealer D bids $15,000,000 at 10.50% Broker-dealer E bids $18,000,000 at 9.90% Broker-dealer F bids $17,000,000 at 9.60% At what rate will the auction clear and what amounts do each broker-dealer receive?
| The Treasury plans to issue $100 million of 52-day Treasury Bills using a Dutch auction system. | |||||||||||||
| They received $55 million in non-competitive bids. | |||||||||||||
| They also received the following competitive bids: | |||||||||||||
| Broker-dealer A bids $40,000,000 at 11.70% | |||||||||||||
| Broker-dealer B bids $14,000,000 at 11.50% | |||||||||||||
| Broker-dealer C bids $18,000,000 at 10.80% | |||||||||||||
| Broker-dealer D bids $15,000,000 at 10.50% | |||||||||||||
| Broker-dealer E bids $18,000,000 at 9.90% | |||||||||||||
| Broker-dealer F bids $17,000,000 at 9.60% | |||||||||||||
| At what rate will the auction clear and what amounts do each broker-dealer receive? |
A Dutch auction is a type of auction in which the auctioneer begins with a high asking price for an item and gradually lowers it until a bidder accepts the price or the reserve price is met.
In a Dutch auction, the bidding starts at a very high price, which is gradually lowered in predetermined increments until a bidder agrees to buy the item at the current price. The first bidder to accept the current price wins the item.
Dutch auctions are commonly used for government bond auctions, where the offering price is gradually lowered until it reaches a level where investors are willing to buy the bonds. They are also used in some online marketplaces and in the sale of perishable goods such as flowers or fish.
One advantage of a Dutch auction is that it can save time and reduce uncertainty by quickly finding the price at which the item can be sold. However, it can also create a sense of urgency for bidders to accept the current price, leading to the possibility of buyers paying more than they would in a traditional auction.a
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