The Treasury is issuing a 2-year new note on March 15, 2013. The total offering is $15,000,000,000, and we observe the following demand schedule:
Tendered Yield
1,000,000,000 0.999%
3,000,000,000 1.000%
1,000,000,000 1.001%
4,000,000,000 1.002%
2,000,000,000 1.003%
3,000,000,000 1.004%
5,000,000,000 1.005%
1,000,000,000 1.006%
What yield clears the market? If the Treasury wishes to offer the issue at as close to par as possible, but not at a premium (i.e. price must be below par value), what is the coupon on the bond? The Treasury offers coupons in increments of 1/8%. What is the price of the bond given the discount factors above? What is the price of the bond given the market clearing yield (YTM)?