CFA Level I · CFA Level I Exam · Fixed-Income Markets for Government Issuers
Compared with a multiple-price auction, a single-price auction for government bonds is most likely to:
A single-price auction most likely encourages more aggressive bidding because bidders pay the common stop-out price instead of their own bid, reducing the winner's curse. It does not guarantee higher revenue, and competitive bids are still permitted alongside non-competitive tenders.
- Aencourage more aggressive bidding because bidders face less winner's curse riskCorrect
- Bguarantee a higher total revenue for the government in every auction
- Crequire all bidders to submit only non-competitive tenders
Explanation
In a single-price auction, bidders pay the stop-out price rather than their own bid, so overpaying relative to others is less likely and winner's curse is reduced, encouraging aggressive bids. Higher revenue is not guaranteed, and competitive bids remain allowed.
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