Develop an interest rate swap in which both alpha and beta

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Alpha and Beta Companies can borrow at the following rates.

                                                     Alpha               Beta

Moody's credit rating                           Aa                 Baa

Fixed-rate borrowing cost                    10.5%             12.0%

Floating-rate borrowing cost                LIBOR              LIBOR + 1%

a) Calculate the Quality Spread Differential (QSD).

b) Develop an interest rate swap in which both Alpha and Beta have an equal cost savings in their borrowing costs. 

Assume Alpha desires floating-rate debt and Beta desires fixed-rate debt.

Reference no: EM13460771

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