Default risk premium
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.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
