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Calculate the quality spread differential

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Reference no: EM133033591

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

Alpha Beta Moody's credit rating Aa Baa

Fixed-rate borrowing cost 12.3% 15.6%

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 14.3-12.6 percent against LIBOR flat. Calculate the quality spread differential (QSD).

Reference no: EM133033591

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