Question: Alpha and Beta Companies can borrow for a five-year term at the following rates: Assuming more realistically that a swap bank is involved as an
Alpha and Beta Companies can borrow for a five-year term at the following rates: Assuming more realistically that a swap bank is involved as an intermediary. Assume the swap bank is quoting five-year dollar interest rate swaps at 14.712.8 percent against SOFR +0.72 percent. Compute the rates Alpha and Beta should pay to the swap bank in this swap, and calculate the all-in-cost of borrowing for Alpha and Beta and the earnings for the swap bank. Required: a. Calculate the quality spread differential (QSD). b-1. 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. Compute the rates Alpha and Beta should pay to the swap bank in this swap. b-2. Calculate the all-in-cost of borrowing for Alpha and Beta and the earnings for the swap bank. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Calculate the quality spread differential (QSD). Note: Enter your answers as a percent rounded to 1 decimal place
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