Question

2. At a U.S. Treasury bond auction $100 million in bonds are to be auctioned. $20 million in noncompetitive bids are placed. $40 million in bids at an interest rate of 5% are placed. $30 million in bids at an interest rate of 5.25% are placed. $5 million in bids at an interest rate of 5.35% are placed. $20 million in bids at an interest rate of 5.45% are placed. What will the interest rate on the newly issued bonds be?

A. 5%

B. 5.25%

C. 5.45%

D. None of the above

Answer 1

The interest rate for the bond will be the rate at which all of $100 million in bonds can be sold

$ 20 million in noncompetitive bids + $ 40 million at interest rate of 5% + $ 30 million at interest rate of 5.25% + $ 5 million at interest rate of 5.35% = $95 million + $ 5 million at an interest rate of 5.45% is needed for the fulfillment of auction bid

Last interest rate at which bid is placed is 5.45% , hence interest rates o newly issued bonds will be 5.45%

Answer: C