2) Alpha and Beta Companies can borrow for a five-year term at the following rates: ALPHA BETA MOODY'S CREDIT RATING Baa FIXED-RATE BORROWING COST 10.5% 12.0% LIBOR LIBOR + 1% FLOATING-RATE BORROWING COST a) Calculate the quality spread differential (QSD). Describe 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. Assume no swap bank is involved. b) Repeat the above assuming that a swap bank is involved as an intermediary. Assume the swap bank is quoting five-year dollar interest rate swaps at 10.7-10.8 percent against LIBOR flat. 2) Alpha and Beta Companies can borrow for a five-year term at the following rates: ALPHA BETA MOODY'S CREDIT RATING Baa FIXED-RATE BORROWING COST 10.5% 12.0% LIBOR LIBOR + 1% FLOATING-RATE BORROWING COST a) Calculate the quality spread differential (QSD). Describe 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. Assume no swap bank is involved. b) Repeat the above assuming that a swap bank is involved as an intermediary. Assume the swap bank is quoting five-year dollar interest rate swaps at 10.7-10.8 percent against LIBOR flat