The following table shows the borrowing opportunities for two firms.

	Fixed rate	Floating rate
Firm A	11.75 %	LIBOR + 1.00%
Firm B	9.75%	LIBOR

Firm A can borrow at a floating rate at LIBOR+1.00%. However, Firm A would prefer to raise the money by issuing 5-year fixed-rate notes at 11.75%. On the other hand, Firm B considers issuing 5-year fixed rate Eurodollar bonds at 9.75% while it would make more sense for Firm B to borrow at a floating rate at LIBOR. Finally, the swap bank makes the following offers to both firms.

i) What is the total gain for this swap? In other words, figure out QSD (quality spread differential)

ii) Figure out the gain for Firm A

iii) Figure out the gain for Firm B

iv) Figure out the gain for Swap bank

Interest Rate Swap Swap 9 3/496 Bank 11 1/29 LIBOR - 1/4% LIBOR +1% Firm Firm B