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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 11.7
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 | 11.7 | % | 14.4 | % |
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 13.112.0 percent against LIBOR flat.
Calculate the quality spread differential (QSD). (Enter your answers as a percent rounded to 1 decimal places.)
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