Calculate the quality spread differential for alpha company

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Alpha and Beta Companies can borrow for a five-year term at the following rates:

AlphaBeta

Moody's credit rating                                    Aa                     Baa

Fixed-rate borrowing cost                       11.1%             13.2%

Floating-rate borrowing cost                    LIBOR               LIBOR + 1%

Assuming more realistically that a swap bank is involved as an intermediary. Assume the swap bank is quoting five-year dollar interest rate swaps at 11.9-11.4 percent against LIBOR flat.

Problem 1: Calculate the quality spread differential (QSD)

Reference no: EM132945984

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