Intel and Advanced Micro Devices (AMD) companies can borrow for a three-year term at the following rates: Intel AMD Moodys credit rating AAA BBB Fixed-rate borrowing cost 4% 6.5% Floating-rate borrowing cost LIBOR LIBOR + 1%

a. Calculate the quality spread differential (QSD). (1 mark)

b. Assume Intel desires floating-rate debt and AMD desires fixed-rate debt. If there is a swap bank involved as an intermediary, assume the swap bank is quoting three-year dollar interest rate swaps at 4.8% - 5% against LIBOR flat. Develop an interest rate swap in which both Intel and AMD have cost savings in their borrowing costs. What are the all-in costs for both companies and the swap bank? How would QSD be split between Intel, AMD and the swap bank? (3.5 marks)