Question: 3. A and B can borrow for a 5-yrear term at the following rates: Rating Fixed rate borrowing cost Floating rate A Aa 10.5% a.

3. A and B can borrow for a 5-yrear term at the following rates: Rating Fixed rate borrowing cost Floating rate A Aa 10.5% a. Calculate QSD (5%) LIBOR+0.5% B Baa 13.0% LIBOR+1.5% b. If A agrees to pay LIBOR+1% to B in return for a fixed rate of 12%, what is the all-in cost for A and B, respectively? (12%) c. Continued from b, how do A and B share the QSD from the swap? (5%)

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