Firm A can borrow at a floating rate at SOFR$+0\mathrm{.}50\%.$ However, Firm A would

prefer to raise the money by issuing $5-$year fixed$-$rate notes at $11\mathrm{.}25\%.$ On the other

hand, Firm B considers issuing $5-$year fixed rate Eurodollar bonds at $9\mathrm{.}75\%,$

while it would make more sense for Firm B to borrow at a floating rate at SOFR.

Finally, the swap bank makes the following offers to both firms.

Interest Rate Swap

$($Please replace LIBOR by SOFR on the picture above.$)$

a$)$ What is the total gain for this swap? In other words, figure out QSD $($quality

spread differential$).(25$ points$)$

b$)$ Figure out the gain for Swap bank. $(25$points$)$

c$)$ Figure out the gains for Firm A and Firm B$,$ respectively. $(40$points$)$