The government must finance an initial debt of 2500 EC.
The bids of the 5 investors, for each price, are presented in the table below:
In this example, the government raises 285 EC at 0.95 and 720 EC at 0.90 . It could raise a total of 1955 EC at 0.85, but it only needs to raise an additional 2500-1005=1495 EC, which means it needs to sell 1495/0.85=1759. Because the government can finance what is left of its debt at this price, we call this “the last price”.
Since the total demand for bonds at 0.85 (2300) is higher than what the government is willing to buy (1759), the government will allocate the 1759 bonds proportional to the bids on the “last price” to each investor: investors 1, 2 and 4 will obtain the share 600/(2300)=0.26, investor 3 will obtain zero, and investor 5 will obtain the share 500/2300=0.22.
The quantities of bonds allotted for each investor at each price are presented in the table below:
At the end of the period, the value of the debt (2500) plus the interest is just equal to the total quantity of bonds allotted (because the face value is 1 EC). In this example, the total number of bonds sold is 2859.
So, the next period debt to be financed is 2859 minus the random government income that will be shown on the screen.
Individual gains
After each period, you will see a screen summarizing your purchases and gains. For example, for investor 1 in the example above:
The gain for each price is (1-price)x Quantity purchased. So for example, at price 0.9 a total of 200 bonds were purchased and the gain is (1-0.9)x200=20. The total income of investor 1 at the end of this round is 1091.