Final answer:
To determine the rate Alpha should pay to Beta in an interest rate swap, information on both parties' borrowing costs for fixed and floating rates is needed. They would negotiate a rate that offers equal cost savings, with Alpha typically paying a floating rate and Beta a fixed rate. The exact rate requires specific financial details, which are not provided.
Step-by-step explanation:
To develop an interest rate swap where both Alpha and Beta have equal cost savings without a swap bank, we must first understand their individual borrowing costs and preferences. Since Alpha desires floating-rate debt and Beta desires fixed-rate debt, they can enter into a swap agreement that benefits both parties. The rate Alpha should pay to Beta depends on the differential between their respective fixed and floating interest rates.
Without detailed information on Alpha and Beta's borrowing costs for fixed and floating rates, it's impractical to specify the exact rate. However, in a typical swap, Alpha would agree to pay the floating rate to Beta, while Beta would pay Alpha the fixed rate. The difference between these rates would be negotiated so that both parties receive the equivalent financial benefit.
This cooperative arrangement allows both Alpha and Beta to take advantage of their individual market strengths and preferences, leading to potential savings for each. However, determining the exact rate would require additional information on market rates, Alpha's creditworthiness for obtaining a floating rate, and Beta's creditworthiness for obtaining a fixed rate.