Alpha and Beta Companles can borrow for a five$-$year term at the following rates:

Requlred:

a$.$ Calculate the quality spread differentlal $($QSD$).$

b$-1.$ Develop an Interest rate swap in which both Alpha and Beta have an equal cost savings in thelr borrowing costs.

Assume Alpha desires floating$-$rate debt and Beta desires fixed$-$rate debt. No swap bank is Involved in this transaction. What

rate should Alpha pay to Beta?

b$-2.$ What rate will Beta pay to Alpha?

b$-3.$ Calculate the all$-$In$-$cost of borrowing for Alpha and Beta, respectlvely.