Question

The five bidders in the Dutch auction through a black-box tender within four business days were A (who tendered for 25,000 shares at $90 each on 6 May 2019), B (who tendered for 45,000 shares at $92 each on 7 May 2019), C (who tendered for 20,000 shares at $89 each on 9 May 2019), D (who tendered for 40,000 shares at $89 each on 9 May 2019), and E (who tendered for 30,000 shares at $89 each on 8 May 2019). The number of shares being auctioned was 130,000.

1. What was the price paid by bidders on 10 May 2019?
2. How many shares did each bidder receive on 10 May 2019, in a first come first served basis and next in a fair manner?

Answer 1

Question 1 (A) The Price paid by the bidders will be the average of the price per share auctioned by all the investors

Price paid by bidders = Sum of All the amount invested / Number of shares

Sum of All the amount invetsed = Number of Shares * Price

= (25000 * 90) + (45000 * 92) + (20000 * 89) + (40000 * 89) + (30000 * 89)

Sum of Amount invetsed = 14400000

Number of shares = ( 25000 + 45000 +20000 + 40000 + 30000)

= 160000 Shares

Price paid by bidders = 14400000 / 160000

Price paid by bidders per share = $90

Question 2. First Come first serve

A will receive 25000 shares , B will receive 45000 shares, E will receive 30000 shares and now C and D bid on the same date so they will be alloted on the pro-rata basis or fair manner.

Shares Left for C and D out of 130000 = (130000 - 25000 - 45000 - 30000)

= 30000 Shares

Total Number of shares bid by C and D = (20000 + 40000)

= 60000 shares

So, C will receive

= (Shares Bidded / Total Shares bid by C abd D) * Number of shares to be alloted

= ( 20000 / 60000) * 30000

= 10000 Shares

D will receive

= (Shares Bidded / Total Shares bid by C abd D) * Number of shares to be alloted

= (40000 / 60000) * 30000

= 20000 Shares