What is the price paid by bidders that gets accepted by all other bidders classified as_____________?
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Answer: B. lowest price
Explanation
In a uniform-price auction, all successful competitive bidders pay the lowest accepted price among the winning bids. This pricing mechanism ensures that every successful bidder receives the same price for the allocated securities. Setting a single clearing price prevents the winner's curse associated with discriminatory multiple-price auctions. Government debt issuance frequently utilizes uniform-price auction formats to sell treasury bills and bonds efficiently. The stop-out yield determines the lowest accepted price that clears the entire supply of offered securities. All bidders willing to pay at least this threshold price are awarded their requested allocation.
Central banks implement this auction structure to promote market transparency and encourage aggressive primary dealer bidding. Investors evaluate historical stop-out yields carefully before submitting competitive tenders for upcoming government debt auctions. Fair pricing mechanisms help maintain deep and liquid secondary markets for sovereign debt instruments. The highest price would unfairly penalize winning bidders by charging them more than the market clearing rate. A zero price implies that securities are given away without any financial compensation to the issuer. Peak price represents a volatile market high rather than a standardized auction clearing mechanism.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
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