Financial Glossary: Auction Rate


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Auction Rate

Auction Rate

The Interest rate that Will be paid on a specific Security as determined by the Dutch Auction process.

The auctions take place at periodic intervals, and the Interest rate is fixed until the next Auction is held. This process is commonly used to determine the Interest rate on Treasury bills.

The Auction rate is also used in other Debt securities, such as municipal bonds. This is a good way for both the investor and the issuer to forecast their returns and costs, respectively, as the auctions can be held as often as annually or even weekly. The Auction process also allows investors to mitigate Reinvestment risk because the Interest rate fluctuations are generally less volatile.

Dutch Auction is a public offering Auction structure in which the price of the offering is set after taking in all bids and determining the highest price at which the total offering can be sold. Auction is a system where potential buyers place competitive bids on assets and services.

Posted by IBC Conferences

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