Question: Alpha and Beta Companies can borrow for a five-year term at the following rates: Alpha Beta Moody's credit rating Aa Baa Fixed-rate borrowing cost 10.5

Alpha and Beta Companies can borrow for a five-year term at the following rates: Alpha Beta Moody's credit rating Aa Baa Fixed-rate borrowing cost 10.5 % 12.0 % Floating-rate borrowing cost LIBOR LIBOR 1 % 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 10.7-10.8 percent against LIBOR flat. Calculate the quality spread differential (QSD).

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