Suppose company Alpha can issue five year fixed rate debt at or floating rate debt at SOFR Company Beta can issue five year fixed rate debt at or floating rate debt at SOFR A swap bank is quoting five year dollar interest rate swaps at against SOFR Suppose Alpha desires floating rate debt and Beta desires fixed rate debt. We wish to develop an interest rate swap in which both Alpha and Beta have an equal savings in their borrowing costs.

a Compute the quality spread differential QSD

b What are the cash flows between Alpha and swap bank?

c What are the cash flows between Beta and the swap bank?

d Compute Alphas net debt cost.

e Compute Betas net debt cost