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PLEASE answer as quick as possible, I will give the thumb up! 2. Company X and Company Y can borrow for a five-year term at

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PLEASE answer as quick as possible, I will give the thumb up!

2. Company X and Company Y can borrow for a five-year term at the following rates: Company X Company Y Credit Rating AAA BBB Fixed rate 5.0% 6.5% Floating rate LIBOR LIBOR +1% Assume that a swap bank is quoting five-year dollar interest rate swaps at 10.2-10.3 percent against LIBOR flat. a) Compute the quality spread differential (QSD) and interpret the results. (7 Pts) b) Develop an interest rate swap in which both companies have an equal cost saving in their borrowing costs. Assume Company X prefers floating-rate debt and Company Y prefers fixed-rate debt. (10 pts) c) By using the interest swap, what is the cost savings for each company and the profit for the swap bank? (7 Pts)

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