The U.S. Treasury announces an auction for 5-year T-notes in the amount of $12.0

Question

The U.S. Treasury announces an auction for 5-year T-notes in the amount of $12.01bln. Non-competitive bids received total $1.25bln. The following are the top competitive bids received:
Bidder 1: $3.09bln. at 1.25%
Bidder 2: $2.15bln. at 1.26%
Bidder 3: $1.84bln. at 1.27%
Bidder 4: $2.51bln. at 1.275%
Bidder 5: $1.49bln. at 1.28%
Bidder 6: $1.91bln. at 1.28%
Bidder 7: $0.76bln at 1.285%
What will be the allocation to Bidder 5? (Record your answer in $bln, to the nearest $0.001bln, drop the $ symbol. E.g., if your answer is $375.5mln, record it as 0.376.)

Explanation / Answer

Solution :

The total amount that can be allocated = 12.01 billion

Non- competitive bidding = 1.25 billion

Since in this process non- competitive bidder will get allocated first so amount that will be available for competitive bidders = Total - non-competitive = 12.01 -1.25 = $10.76 billion

Competitive bidding: The bidders with lowest yield rate will get allocated first and un this case bidder 1 will get first then bidder 2 then 3 and so one till the whole amount worth of T-notes is allocated

Now since first 4 bidders have combined bid of $9.59 billion at lowest yield rate ( 3.09 + 2.15+ 1.84 + 2.51)

So bidder 5 will get remaining 10.76 - 9.59 = $1.17 Billion

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