Alpha and Beta Companies can borrow for a five-year term at the following rates: Moody's credit...

 

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Alpha and Beta Companies can borrow for a five-year term at the following rates: Moody's credit rating Fixed-rate borrowing cost Floating-rate borrowing cost Alpha Betal 10.6% SOFR + 0.72% Baa 12.2% SOFR + 1.72% 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 10.9-10.9 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. Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Calculate the quality spread differential (QSD). Note: Enter your answers as a percent rounded to 1 decimal place. Quality spread differential % Alpha and Beta Companies can borrow for a five-year term at the following rates: Moody's credit rating Fixed-rate borrowing cost Floating-rate borrowing cost Alpha Betal 10.6% SOFR + 0.72% Baa 12.2% SOFR + 1.72% 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 10.9-10.9 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. Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Calculate the quality spread differential (QSD). Note: Enter your answers as a percent rounded to 1 decimal place. Quality spread differential %