Desires floating-rate debt and beta desires fixed-rate debt

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Reference no: EM131360804

Alpha and Beta Companies can borrow at the following rates.

Alpha Beta

Moody's credit rating ............................................... Aa.......................... Baa

Fixed-rate borrowing cost .........................................10% .....................13.0%

Floating-rate borrowing cost ............................... LIBOR + 0.5 .......... LIBOR + 1.5%

1- Calculate the QSD

2- Develop an interest rate swap in which both Alpha and Beta have an equal cost savings in their borrowing costs. Assume Alpha desires floating-rate debt and Beta desires fixed-rate debt.

3- Do over again, this time assuming more realistically that a swap bank is involved as an intermediary and the QSD will be divided as follow: 10% for swap bank, 50% for beta and 40% for alpha. Develop an interest rate swap. show the final costs for alpha and beta.

Reference no: EM131360804

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