Fixed Income Hw4

Fixed Income Hw4 - Siming Zhu October 1 2008 AEM 4260_Fixed...

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Siming Zhu October 1, 2008 AEM 4260_Fixed Income Homework #4 Chapter 6 Q9. In a Treasury auction, how is the price that a competitive bidder must pay determined in a single-price auction format? Treasuries issuance is conducted through a single price auction. In the single-price auction, bids are arranged from the lowest to the highest yield bid submitted by competitive bidders. Then starting from the lowest yield bid, all competitive bids are accepted until the amount available to competitive bidders is completely allocated. All participants (competitive and noncompetitive bidders) are awarded treasury issues at the highest yield accepted (stop out yield) by the treasury; with all “winning” bidders paying the same price (and earning the same yield), regardless of what their bid was. Chapter 8 Q3. What is the difference between a general obligation bond and a revenue bond? General obligation bonds are a type of municipal bond that s backed by the taxing powers of the municipality issuing the bond. General obligation debt comes in two forms: unlimited and limited tax general obligation debt. The unlimited tax general obligation debt is backed by the issuer’s credit and unlimited taxing powers; whereas the limited tax general obligation debt has a statutory limit on tax rate issuers are allowed to levy to service the debt. General obligation bonds are not collateralized with assets because they are issued with the belief that the
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This note was uploaded on 01/20/2009 for the course AEM 4260 taught by Professor Bogan,v. during the Fall '06 term at Cornell.

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Fixed Income Hw4 - Siming Zhu October 1 2008 AEM 4260_Fixed...

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