Alpha and Beta Companies can borrow for a five-year term at the following rates: ...
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Alpha and Beta Companies can borrow for a five-year term at the following rates:
| Alpha | Beta | |
| Moodys 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 10.710.8 percent against LIBOR flat. Calculate the quality spread differential (QSD). (Enter your answers as a percent rounded to 1 decimal places.)
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