Company A is an AAA-rated firm desiring to issue five-year FRNs. It finds that it can issue FRNs at six-month LIBOR + .185 percent or at three-month LIBOR + .185 percent. Given its asset structure, three-month LIBOR is the preferred index. Company B is an A-rated firm that also desires to issue five-year FRNs. It finds it can issue at six-month LIBOR + 1.0 percent or at three-month LIBOR + .685 percent. Given its asset structure, six-month LIBOR is the preferred index. Assume a notional principal of $15,000,000. Determine the quality spread differential (QSD). (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places.)
Company A is an AAA-rated firm desiring to issue five-year FRNs. It finds that it can issue FRNs at six-month LIBOR + .185 percent or at three-month LIBOR + .185 percent. Given its asset structure, three-month LIBOR is the preferred index. Company B is an A-rated firm that also desires to issue five-year FRNs. It finds it can issue at six-month LIBOR + 1.0 percent or at three-month LIBOR + .685 percent. Given its asset structure, six-month LIBOR is the preferred index. Assume a notional principal of $15,000,000. Determine the quality spread differential (QSD). (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places.)
Chapter20: Financing With Derivatives
Section20.B: Bond Refunding Analysis
Problem 2P
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Company A is an AAA-rated firm desiring to issue five-year FRNs. It finds that it can issue FRNs at six-month LIBOR + .185 percent or at three-month LIBOR + .185 percent. Given its asset structure, three-month LIBOR is the preferred index. Company B is an A-rated firm that also desires to issue five-year FRNs. It finds it can issue at six-month LIBOR + 1.0 percent or at three-month LIBOR + .685 percent. Given its asset structure, six-month LIBOR is the preferred index. Assume a notional principal of $15,000,000. Determine the quality spread differential (QSD). (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places.)
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