Problem $14\mathrm{.}3$

Company $A$ is a AAA$-$rated firm desiring to issue five$-$year FRNs$.$ It finds that it can issue FRNs at six$-$month CME Term

SOFR $+0\mathrm{.}615$ percent or at three$-$month CME Term SOFR $+0\mathrm{.}615$ percent. Given its asset structure, three$-$month SOFR

is the preferred index. Company B is an A$-$rated firm that also desires to issue five$-$year FRNs$.$ It finds it can issue at six$-$

month CME Term SOFR $+1\mathrm{.}475$ percent or at three$-$month CME Term SOFR $+1\mathrm{.}115$ percent. Given its asset structure, six$-$

month SOFR is the preferred index. Assume a notional principal of $$15,000,000.$

Required:

a$.$ Determine the QSD$.$

b$.$ Set up a floating$-$for$-$floating rate swap where the swap bank receives $0\mathrm{.}125$ percent and the two counterparties

share the remaining savings equally. Calculate the all$-$in$-$cost of borrowing for company A and $B.$

Complete this question by entering your answers in the tabs below.

Required $A$

Determine the QSD$.$

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to $3$ decimal places.

Quality spread differential

$\%$