Alpha and Beta Companies can borrow for a five-year term at the following rates: Moody's credit rating Fixed-rate borrowing cost Floating-rate borrowing cost Alpha Beta Aa 11.9% SOFR +0.72% Baa 14.8% SOFR +1.72% 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 13.5-12.2 percent against SOFR + 0.72 percent. Compute the rates Alpha and Beta should pay to the swap bank in this swap, and calculate the all-in-cost of borrowing for Alpha and Beta and the earnings for the swap bank. Required: a. Calculate the quality spread differential (QSD). b-1. 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. Compute the rates Alpha and Beta should pay to the swap bank in this swap. b-2. Calculate the all-in-cost of borrowing for Alpha and Beta and the earnings for the swap bank. Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Calculate the quality spread differential (QSD). Note: Enter your answers as a percent rounded to 1 decimal place. Quality spread differential % < Required A Required B1 >

Alpha and Beta Companies can borrow for a five year term at the following rates: Alpha Beta Moody's credit rating Aa Baa Fixed rate borrowing cost 12.5% ​​16.0% Floating rate borrowing cost SOFR+0.72% SOFR+1.72% Required: a. Calculate the quality spread differential (QSD). b-1. 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. No swap bank is involved in this transaction. What rate should Alpha pay to Beta? b-2. What rate will Beta pay to Alpha? b-3. Calculate the all-in cost of borrowing for Alpha and Beta, respectively.

(Motivation for Interest rate swap) National Bank has a $200b Adjustable Rate Mortgage (ARM) as a liability on its balance sheet. The interest rate on the ARM is 2.34%+Libor. As a result, the bank will have to pay floating interest. The bank is considering hedging the risk in the interest payment to the ARM with a three-year interest rate swap. What will be the Bank's net interest rate of payment if it chooses the right swap? Answer: ____________%.     Euro-€ Swiss franc U. S. dollar Japanese yen Years Bid Ask Bid Ask Bid Ask Bid Ask 2 3.08 3.12 1.68 1.76 5.43 5.46 0.45 0.49 3 3.25 3.29 2.41 2.68 5.78 6.02 0.56 0.59

A bank today makes $100 in 3-year loans with a 16% fixed annual interest rate. It funds the loans today with $100 in 1-year CDs that currently have a 7% annual interest rate. It has the option of entering an interest rate swap contract. The contract includes a variable rate of 4.5% and a fixed rate of 7.5%. If the bank chooses to hedge its interest rate risk using a $100 notional value swap contract, what is the bank's expected net interest income in the first year if all interest rates remain the same throughout the year? A) $9 OB) 12 OC) $7 OD) $16 O E) $6