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Consider the borrowing rates for Parties A and B. A wants to finance a $100,000,000 project at a fixed rate. B wants to finance

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Consider the borrowing rates for Parties A and B. A wants to finance a $100,000,000 project at a fixed rate. B wants to finance a $100,000,000 project at a floating rate. Both firms want the same maturity, 5 years. A swap bank and quote 8.7%-9% to A and B. Firm Fixed Rate Floating A $10.3% Prime +1% B $ 8.9% Prime + 1/2% a. Calculate the quality spread differential (QSD). b. Use a graph to show mutually beneficial interest rate swap between A and the swap bank, as well as one between B and the swap bank. Explain the actual interest rate that A and B faces, respectively, by entering an interest rate swap. c. Calculate annual profit made by the swap bank and the annual cost savings for A and B, respectively.

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