1. Interserve and Kier Group can borrow for one year at the following rates:

	Interserve	Kier Group
Fixed rate	4.50%	5.10%
Floating rate	LIBOR + 0.15%	LIBOR + 0.35%

1. Calculate the quality spread differential for each rate and determine each companys comparative advantage. What does it imply for the borrowing costs of the two companies?

2. Develop an interest rate swap in which both companies have an equal saving in their borrowing costs. Assume Interserve desires floating-rate debt and Kier desires fixed-rate debt and that the intermediary swap bank demands a 0.1% fee on the transaction.