ps1sol - Financial Economics V 3025 Rajiv Sethi Phone: 854...

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Financial Economics V 3025 Fall 2009 Rajiv Sethi 5B Lehman Phone: 854 5140 rs328@columbia.edu Problem Set 1: Solutions 1. (a) The investment rate is 0 : 51962 9 : 48038 = 0 : 05481 = 5 : 481% : (b) If bidder FUN had chosen to bid 5.6% instead of 5.0%, the market clearing dis- count rate would have been 5.50% and bidders MC7, K4C, A29 and FUN would (c) If the issue was for a total of $80 million in face value, and all bids were exactly the same, the market clearing discount rate would have been 5.50% (see spreadsheet for details). (d) If the issue was for a total of $80 million in face value, the likelihood of success would increase for any given pro±le of bids. Bidders would adjust to this by raising their bids. The equilibrium discount rate would be higher, and the price paid per unit of face value accordingly lower. (As in most markets, greater supply would result in a price decline.) 2. The price paid for a 26-week T-bill with face value 10,000 maturing on March 18, 2010
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ps1sol - Financial Economics V 3025 Rajiv Sethi Phone: 854...

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