Question 4 The US Government wanted to auction $600 million worth of 1-year Treasury Bills. Bids for $100 million worth of Treasury Bills were submitted on a non-competitive basis. Institution Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Amount Bidded $100 m $50 m $150 m $50 m $100 m $100 m $175 m Price 98.0 97.5 97.0 96.5 96.0 95.5 95.0 (a) Based on the competitive bids submitted, describe, using a table, how you determine the price: (i) (ii) The stopped-out price The allocations to banks 4, 5 and 6 (12 marks) (b) You have $1,000 to invest for two years and have two choices: Alternative 1: 2-year zero coupon bond selling at a price of 92. Alternative 2: A bank deposit which pays according to the following rates: 1 year spot rate 3 year spot rate 1 year forward rate two years from now 3.0% 4.5% 4.0% Analyse the alternatives to determine the amount received from each alternative at the end of two years. (Give answer to nearest dollar) (8 marks)