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International Financial Management 6th Edition by Sanjiv Eun, Cheol Resnick, Bruce Sabherwal
Edition 6ISBN: 978-0071316972International Financial Management 6th Edition by Sanjiv Eun, Cheol Resnick, Bruce Sabherwal
Edition 6ISBN: 978-0071316972 Exercise 1
Alpha and Beta Companies can borrow for a five-year term at the following rates:
Alpha Beta
Moody's credit ratingAaBaa
Fixed-rate borrowing cost10.5%12.0%
Floating-rate borrowing costLIBORLIBOR + 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. No swap bank is involved in this transaction.
Alpha Beta
Moody's credit ratingAaBaa
Fixed-rate borrowing cost10.5%12.0%
Floating-rate borrowing costLIBORLIBOR + 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. No swap bank is involved in this transaction.
Explanation
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Bank credit is the fund provided by the ...
International Financial Management 6th Edition by Sanjiv Eun, Cheol Resnick, Bruce Sabherwal
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