Terms Beginning With 'd'

Default Risk Premium

  • January 18, 2020
  • Team Kalkine

The extra or additional return that a borrower has to pay to the creditor for assuming default risk, is referred to as default risk premium. It is calculated by taking the difference of debt instrument’s risk-free rate and interest rate.

All borrowers or companies pay a default premium indirectly via the rate at which they have to repay the obligation.

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