The Optimal Strategy for a Risk-Neutral Bidder in a Second-Price

question 115

Multiple Choice

The optimal strategy for a risk-neutral bidder in a second-price, sealed-bid auction with independent private values is to bid:

• A) slightly less than his or her valuation.
• B) slightly higher than his or her valuation.
• C) his or her true valuation.
• D) None of the statements is correct.

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Definitions:

Interest Tax Shield

A reduction in taxable income resulting from deductible interest expenses, typically from debts.

Tax Rate

The proportion of income or profits on which individuals or corporations pay taxes.

Optimal Capital Structure

The proportional mix of debt and equity financing that minimizes a company's cost of capital and maximizes its value.

Market Price

The market's ongoing price for an asset or service available for sale or purchase.