Default risk premium

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Default risk premium (also known by its acronym, DRP) is the premium added to the real risk-free rate to compensate investors for the risk that a borrower may fail to pay the interest and/or principal on a loan when they become due.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Default risk premium (DRP). The premium added to the real risk-free rate to compensate investors for the risk that a borrower may fail to pay the interest and/or principal on a loan when they become due.

According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),

Default risk premium (DRP). The difference between the interest rate on a U.S. Treasury bond and a corporate bond of equal maturity and marketability.

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