solution for chapter 10.pdfVIP

Chapter 10 Interest rate and currency swap P345  1. Solution:  a. The QSD = (12.0% - 10.5%) -(LIBOR + 1% - LIBOR) = 0.5%.  b. Alpha needs to issue fixed-rate debt at 10.5% and Beta needs to issue floating rate-debt at LIBOR + 1%. Alpha needs to pay LIBOR to Beta. Beta needs to pay 10.75% to Alpha.  If this is done, Alpha’s floating-rate all-in-cost is: 10.5% + LIBOR - 10.75% = LIBOR - 0.25%, a 0.25% savings over issuing floating-rate debt on its own.  Beta’s fixed-rate all-in-cost is: LIB