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Alpha and Beta Companies can borrow for a five - year term at the following rates: Alpha Beta Moody s credit rating Aa Baa Fixed

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 11.2%13.4%
Floating-rate borrowing cost SOFR+0.72% SOFR+1.72%
Required:
a. Calculate the quality spread differential (QSD).
b-1. 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. No swap bank is involved in this transaction. What rate should Alpha pay to Beta?
b-2. What rate will Beta pay to Alpha?
b-3. Calculate the all-in-cost of borrowing for Alpha and Beta, respectively.

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