The Federal Reserve is offering Treasury bills with a par value of $25 billion for sale. They have received $7 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:
$$\begin{array} { c c c c }
\text { Bidder } & \text { Price Bid } & \text { Qty } & \text { Bid } \
\mathbf { A } & \$ 9,700 & \$ 5 & \text { billion } \
\text { B } & \$ 9,650 & \$ 9 & \text { billion } \
\mathbf { C } & \$ 9,600 & \$ 4 & \text { billion } \
\text { D } & \$ 9,550 & \$ 9 & \text { billion }
\end{array}$$
What price will Bidder A pay per bond, assuming that bid is accepted?

Question

The Federal Reserve is offering Treasury bills with a par value of $25 billion for sale. They have received $7 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:
$$\begin{array} { c c c c } 
\text { Bidder } & \text { Price Bid } & \text { Qty } & \text { Bid } \
\mathbf { A } & \$ 9,700 & \$ 5 & \text { billion } \
\text { B } & \$ 9,650 & \$ 9 & \text { billion } \
\mathbf { C } & \$ 9,600 & \$ 4 & \text { billion } \
\text { D } & \$ 9,550 & \$ 9 & \text { billion }
\end{array}$$
What price will Bidder A pay per bond, assuming that bid is accepted?

Quizplus · Accepted Answer

Bidder A will pay the highest accepted price, which is the lowest price among the accepted bids. Since $7 billion is already allocated to noncompetitive bids, $18 billion remains. Bidders B and C will be fully accepted, totaling $13 billion, leaving $5 billion for Bidder A at $9,600.

The Federal Reserve Is Offering Treasury Bills with a Par