Use the following information to calculate the quality spread differential (QSD): $\begin{array}{lll}
& \begin{array}{l}
\text { Fixed-Rate Borrowing } \
\text { Cost }
\end{array} & \begin{array}{l}
\text { Floating-Rate } \
\text { Borrowing Cost }
\end{array} \
\hline \text { Company X } & 10 \% & \text { LIBOR } \
\text { Company Y } & 12 \% & \text { LIBOR }+1.5\%
\end{array}$

A)0.50%
B)1.00%
C)1.50%
D)2.00%

Question

Use the following information to calculate the quality spread differential (QSD): $\begin{array}{lll} 
& \begin{array}{l}
\text { Fixed-Rate Borrowing } \
\text { Cost }
\end{array} & \begin{array}{l}
\text { Floating-Rate } \
\text { Borrowing Cost }
\end{array} \
\hline \text { Company X } & 10 \% & \text { LIBOR } \
\text { Company Y } & 12 \% & \text { LIBOR }+1.5\%
\end{array}$

A)0.50%
B)1.00%
C)1.50%
D)2.00%

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 X, the QSD is 10% - LIBOR. For Company Y, the QSD is 12% - (LIBOR + 1.5%). The difference between the two QSDs is 10% - LIBOR - (12% - (LIBOR + 1.5%)) = 0.5%.

Use the Following Information to Calculate the Quality Spread Differential