Question 4 ABC and XYZ Companies can borrow for a five-year term at the following rates:...

 

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Question 4 ABC and XYZ Companies can borrow for a five-year term at the following rates: ABC XYZ Moody's credit rating Aaa Baa Fixed-rate borrowing cost 9.5% 10.3% Floating-rate borrowing cost LIBOR LIBOR +0.3% Assume ABC desires floating-rate debt and XYZ desires fixed-rate debt. No swap bank is involved in this transaction. Required: (a) Calculate the quality spread differential (QSD). [5 marks] (b) Develop an interest rate swap in which both companies have an equal cost savings in their borrowing costs? [10 marks] (c) Calculate all in costs for each company. [10 marks] (d) How much interest rate Company ABC gains from swap per year? # [5 marks] [Total: 30 marks] Question 4 ABC and XYZ Companies can borrow for a five-year term at the following rates: ABC XYZ Moody's credit rating Aaa Baa Fixed-rate borrowing cost 9.5% 10.3% Floating-rate borrowing cost LIBOR LIBOR +0.3% Assume ABC desires floating-rate debt and XYZ desires fixed-rate debt. No swap bank is involved in this transaction. Required: (a) Calculate the quality spread differential (QSD). [5 marks] (b) Develop an interest rate swap in which both companies have an equal cost savings in their borrowing costs? [10 marks] (c) Calculate all in costs for each company. [10 marks] (d) How much interest rate Company ABC gains from swap per year? # [5 marks] [Total: 30 marks]