Explanation:
Under the DAA, potential investors enter their bids quoting the number of shares they intend to purchase and the price they are willing to pay per share. Once the bids have been submitted, the allotment is done starting from the highest bid down, until all the allotted shares have been assigned. However, the final price paid per share is that which has been quoted by the last successful bidder – the buyer whose bid coincides with the end of the intended allotment.
Following the methodology outlined above, here's what would happen in this scenario: First, 400,000 shares would be allocated to C, 200,000 shares to A, 150,000 shares to B, and 100,000 shares to D. At this point, only 150,000 shares remain out of the planned 1 million shares allotment. This means the next highest bid of 300,000 shares at $39 each can only be half-filled. As such, $39 is the price that would be paid by all the other successful bidders.
Q.1105 A company intends to employ the Dutch Auction Approach (DAA) to sell 1 million shares. It receives the following bids:
| Bidder | Number of shares | Price per share |
|---|---|---|
| A | 200,000 | $40.50 |
| B | 150,000 | $39.50 |
| C | 400,000 | $41.00 |
| D | 100,000 | 39.40 |
| E | 300,000 | 39.00 |
| F | 50,000 | 38.75 |
| G | 120,000 | 37.00 |
Which of the following is closest to the price all successful buyers will pay per share?
A
37
B
41
C
40.5
D
39
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