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%

QUESTIONS: 2 questions

(1) Calculate the quality spread differential (QSD).

(2) Develop an interest rate swap on behalf of the swap bank, in which the swap bank will earn a profit of 10 basis points. In addition, Alpha and Beta would have equal cost savings by doing the swap. Assume Alpha desires floating-rate debt and Beta desires fixed-rate debt.