Firm Z Is One of the 5 Bidders, Each with a Value

question 8

Multiple Choice

Firm Z is one of the 5 bidders, each with a value independently drawn from the range $100,000 to $160,000 with all values in between being equally likely. In a sealed-bid auction, Firm Z's equilibrium bidding strategy is:

• A) b_i = (.2)(160,000) + .8v_i
• B) b_i = (.5)(160,000) + .5v_i
• C) b_i = (.25)(100,000) + .75v_i
• D) b_i = (.2)(100,000) + .8v_i
• E) b_i = (.8)(100,000) + .2v_i

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Definitions:

Trading Securities

Financial assets that are bought and sold for the purpose of generating profits from short-term fluctuations in price.

Unrealized Loss-Income

Gains or losses that have occurred on paper but are not yet realized through a transaction.

Fair Value Adjustment

Fair Value Adjustment refers to an accounting action that adjusts the reported value of an asset or liability to reflect its current market value.

Trading Securities Portfolio

A collection of securities bought and held primarily for sale in the short term to generate income on short-term price differences.