Question: Alpha and Beta Companies can borrow for a five-year term at the following rates: a. Calculate the quality spread differential (QSD). b. Develop an interest

Alpha and Beta Companies can borrow for a five-year term at the following rates:

a. Calculate the quality spread differential (QSD).
b. Develop an interest rate swap in which both Alpha and Beta have an equal cost savings in their borrowing costs. Assume Alpha desires floating-rate debt and Beta desires fixed-rate debt. No swap bank is involved in thistransaction.

Moody's credit rating Fixed-rate borrowing cost Floating-rate borrowing cost Alpha Aa 10.5% LIBOR Beta Baa 12.0% LIBOR + 1%

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a The QSD 120 105 minus LIBOR 1 LIBOR 5 b Alpha needs to issue fixedrate debt at 105 and ... View full answer

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