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# Question: During a tender for the issuance of Australian government bonds, the cumulative aggregate demand by bidders is the following:

Question: During a tender for the issuance of Australian government bonds, the cumulative aggregate demand by bidders is the following: Yield Total cumulative aggregate demand (in AUD million face value) 1.20% 1.15% 1.050 1.10% 950 1.05% 900 1.00% 820 1.200 The Australian government is intending to sell AUD million 1,000 face value bonds using a variable
Show transcribed image text1. Most tender offers are made at a distinct charge that represents a tremendous top rate over the contemporary inventory percentage charge. A soft provide might, for instance, be made to buy extraordinary inventory stocks for \$18 a percentage while…View the full answerTranscribed image text: During a tender for the issuance of Australian government bonds, the cumulative aggregate demand by bidders is the following: Yield Total cumulative aggregate demand (in AUD million face value) 1.20% 1.15% 1.050 1.10% 950 1.05% 900 1.00% 820 1.200 The Australian government is intending to sell AUD million 1,000 face value bonds using a variable discriminatory tender. The money of the issue will be paid on the Australian government account in Top Bank, an Australian commercial bank. a. Show the effect of this tender on the Australian government’s balance sheet if the tender is successful. (2 marks) (2 b. Determine the cut-off yield of the tender above. Explain in details the process you have followed to select the cut off yield. (2 marks) c. Calculate the ratio that will be used to calculate the allocation of government bonds to the bidders who bid the cut-off yield. Explain in details the process you have followed to calculate the ratio. (3 marks) d. Consider the following bids by 9 institutional investors (II): Yield in the bid 1.20% 1.15% 1.10% 1.05% 1.00% Quantity in the bid (AUD million face value) 111:100; 112:50 113: 40; 114: 60 115: 30; 116:20 117: 80 118: 420; 119: 400 Determine the quantity of government bonds allocated to each institutional investor. Justify your answers. (3 marks) e. Calculate the volume weighted average winning yield of the tender. (2 marks) f. Assume that 118 is Top Bank itself, the bank in which the Australian government has an account. Assume that 119 is Bottom Bank, another Australian commercial bank. Represent the effect of this tender on the balance sheet of Top Bank and the balance sheet of Bottom Bank. Explain the reasons for the balance sheets changes. (3 marks)

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