Question

The government is issuing $100 million in 10 year debt and receives the following bids. $25 million is reserved for non-competitive tenders. At what yield will the non-competitive tenders be issued bonds? Bid #1 Bid #2 Bid #3 Bid #4 Bid #5 $25 million @ 4.0% $25 million @ 4.2% $25 million @ 4.4% $25 million @ 4.5% $25 million @ 4.7% 4.00% 4.10% 4.20% 4.15%

Answer 1

Three successful bids are at rate of 4%, 4.2% and 4.4% we will take the average of these for finding the rate for non competitive bidders which will be equal to (4% + 4.2% + 4.4%)/3 = 4.2%

Thus the correct answer is option 3 i.e., 4.2%