The US treasury recently held an auction for the ten-year note. The amount aucti

Question

The US treasury recently held an auction for the ten-year note. The amount auctioned was $15 billion and they received a total of $3 billion in non-competitive bids. Competitive bidders submitted a total of $25 billion in bids. The stop-out rate on the auction was 4.12%. You were one of the competitive bidders, having bid for $1 billion of notes at a rate of 4.11%. What was the face value of the notes that you were awarded at this auction? (answer in $ billion) What yield will you earn on the notes that you are awarded at the auction? (answer to two decimal places)

Explanation / Answer

The amount which is left for auction process = 15 - 3 = $ 12 Billion.

a) The face value of the notes that you as a one of the competitive bidder will be awarded in the auction:-

   = 12 / 25 * 1

= $ 0.48 Billion

b) The yield that you will earn on notes = 0.48 Billion * 4.12 % = 0.019776 Billion [0.02 Billion approx.]

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