$\begin{array}{lll}
&\text { Fixed-Rate } & \text { Floating-Rate } \
&\text { Borrowing Cost } & \text { Borrowing Cost }\
\text { Company: A} & 6 \% & \text { LIBOR } \
\text { Company: B} & 5 \% & \text { LIBOR }-0.5
\end{array}$
-Calculate the quality spread differential (QSD):
A) 0.50%.
B) 1.00%.
C) 1.50%.
D) 2.00%.

Question

Quizplus · Accepted Answer

The quality spread differential (QSD) is the difference between the fixed-rate borrowing cost and the floating-rate borrowing cost. For Company A, the QSD is 6% - LIBOR. For Company B, the QSD is 5% - (LIBOR - 0.5) = 5% - LIBOR + 0.5 = 5.5% - LIBOR. Therefore, the QSD differential is 5.5% - LIBOR - (6% - LIBOR) = 0.5%.

-Calculate the Quality Spread Differential (QSD): A) 0

-Calculate the Quality Spread Differential (QSD):
A) 0