3. The following table shows the borrowing opportunities for two firms. Fixed rate Floating rate Firm A 11.25 % LIBOR + 0.50% Firm B 9.75% LIBOR Firm A can raise the money by issuing 5-year floating-rate notes at LIBOR + 0.50%. However, Firm A would prefer to borrow at a fixed rate. On the other hand, Firm B considers issuing 5-year fixed-rate Eurodollar bonds at 9.75 percent. It would make more sense for Firm B to issue floating-rate notes at LIBOR. Finally, the swap bank makes the following offers to both firms. Interest Rate Swap Swap Bank 9,3% 111/2% LIBOR +1% LIBOR - 1/4% Firm B a) What is the total gain for this swap? In other words, figure out QSD (quality spread differential). (25points) b) Figure out the gain for Firm A and Firm B. (50points) c) Figure out the gain for Swap bank. (25points) 3. The following table shows the borrowing opportunities for two firms. Fixed rate Floating rate Firm A 11.25 % LIBOR + 0.50% Firm B 9.75% LIBOR Firm A can raise the money by issuing 5-year floating-rate notes at LIBOR + 0.50%. However, Firm A would prefer to borrow at a fixed rate. On the other hand, Firm B considers issuing 5-year fixed-rate Eurodollar bonds at 9.75 percent. It would make more sense for Firm B to issue floating-rate notes at LIBOR. Finally, the swap bank makes the following offers to both firms. Interest Rate Swap Swap Bank 9,3% 111/2% LIBOR +1% LIBOR - 1/4% Firm B a) What is the total gain for this swap? In other words, figure out QSD (quality spread differential). (25points) b) Figure out the gain for Firm A and Firm B. (50points) c) Figure out the gain for Swap bank. (25points)