Use the following information to calculate the quality spread differential (QSD).

$$\begin{array} { c c c }
& \text { Fixed-Rate Borrowirg } & \text { Floating-Rate BorTownre } \
&\text { Cost } & \text { Cost } \
\text { Compary X } & 10 \% & \text { LIBOR } \
\text { Compary Y } & 12 \% & \text { LIBOR } + 1.5 \%
\end{array}$$
A)0.50 percent
B)1.00 percent
C)1.50 percent
D)2.00 percent

Question

Use the following information to calculate the quality spread differential (QSD).

$$\begin{array} { c c c } 
& \text { Fixed-Rate Borrowirg } & \text { Floating-Rate BorTownre } \
&\text { Cost } & \text {  Cost } \
\text { Compary X } & 10 \% & \text { LIBOR } \
\text { Compary Y } & 12 \% & \text { LIBOR } + 1.5 \%
\end{array}$$
A)0.50 percent
B)1.00 percent
C)1.50 percent
D)2.00 percent

Quizplus · Accepted Answer

The quality spread differential (QSD) is the difference between the fixed-rate borrowing cost and the floating-rate borrowing cost. In this case, the QSD for Company X is 10% - LIBOR, and the QSD for Company Y is 12% - (LIBOR + 1.5%). Therefore, the QSD differential is (10% - LIBOR) - (12% - (LIBOR + 1.5%)) = 0.5%.

Use the Following Information to Calculate the Quality Spread Differential