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	10.5%	12.0%
Floating-rate borrowing cost	LIBOR	LIBOR + 1%

a. Calculate the quality spread differential (QSD):

b. 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.