Fitch's credit rating Fixed-rate borrowing B AAA 11.2% Y BB 12.5% cost Floating-rate borrowing cost...
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Fitch's credit rating Fixed-rate borrowing B AAA 11.2% Y BB 12.5% cost Floating-rate borrowing cost LIBOR LIBOR+0.5 a. Calculate the quality spread differential (QSD). b. Develop an interest rate swap in which both B and Y have an equal cost savings in their borrowing costs. Assume B desires floating-rate debt and Y desires fixed-rate debt. No swap bank is involved in this transaction. c. Do problem l over again, this time 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 11.5% -11.7% against LIBOR flat
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