Question

The Treasury auctioned $3 billion par value 91-day T-bills, the following bids were received:

Bidder	Bid Amount	Bid Price
1	$600 million	$0.9941
2	$700 million	$0.9939
3	$1.2 billion	$0.9938
4	$1 billion	$0.9943
5	$800 million	$0.9945

The treasury also received $900 million noncompetitive bids. What would be the final price of this issue?

	A.	$0.9939
	B.	$0.9941
	C.	$0.9943
	D.	$0.9945

Answer 1

Answer. (A) $0.9939

Explaination :-

First lets arrange the given prices from highest to lowest.

Bid Amount Price

$800 million $0.9945

$1000 million $0.9943

$600 million $0.9941

$700 million $0.9939

$1200 million $0.9938

Here, Treasury is looking to raise $3 billion which is equals to $3000 million. Therefore, the first $800 million will be considered as a highest bid price that is $0.9945 then, $1000 million will be considered as second highest bid price that is $0.9943 then, $600 million will be considered as third highest bid price that is $0.9941 . Now, we only need $600 more to raise the desired amount $3000 million. So, only $600 million out of the $700 million at the next highest price $0.9939 will be considered as final price for this issue.

Since, the desired amount of $3 billion is fulfilled at the price of $0.9939 that becomes the final price as it is the cut-off price. All bids above $0.9939 will be accepted and below $0.9939 will be rejected.

Non - Competitive bidders have to accept the final price determined at the auction.therefore, the auction is cleared at $0.9939 and all successful competitors and non-competitors will have to pay the price $0.9939.