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Default Risk Premium Calculator

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Risk Management

✖Interest Rate is the amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.ⓘ Interest Rate [R_i]			+10% -10%
✖The Risk Free Rate is the theoretical rate of return of an investment with zero risks.ⓘ Risk Free Rate [R_f]			+10% -10%

✖The Default Risk Premium (DRP) measures the incremental return that investors require as compensation for undertaking the risk of holding a risky security, such as a corporate bond.ⓘ Default Risk Premium [DRP]

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Default Risk Premium Solution

STEP 0: Pre-Calculation Summary

Formula Used

Default Risk Premium = Interest Rate-Risk Free Rate
DRP = R_i-R_f
This formula uses 3 Variables

Variables Used

Default Risk Premium - The Default Risk Premium (DRP) measures the incremental return that investors require as compensation for undertaking the risk of holding a risky security, such as a corporate bond.
Interest Rate - Interest Rate is the amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.
Risk Free Rate - The Risk Free Rate is the theoretical rate of return of an investment with zero risks.

STEP 1: Convert Input(s) to Base Unit

Interest Rate: 6 --> No Conversion Required
Risk Free Rate: 0.3 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

DRP = R_i-R_f --> 6-0.3

Evaluating ... ...

DRP = 5.7

STEP 3: Convert Result to Output's Unit

5.7 --> No Conversion Required

FINAL ANSWER

5.7 <-- Default Risk Premium

(Calculation completed in 00.004 seconds)

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Created by Kashish Arora

Satyawati College (DU), New Delhi

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Default Risk Premium Formula

LaTeX Go

Default Risk Premium = Interest Rate-Risk Free Rate
DRP = R_i-R_f

What is Default Risk Premium?

The Default Risk Premium (DRP) measures the incremental return that investors require as compensation for undertaking the risk of holding a risky security, such as a corporate bond.
The default risk premium (DRP) is a core component in the pricing of debt instruments and a critical part of understanding the risk-return tradeoff in investing.

How to Calculate Default Risk Premium?

Default Risk Premium calculator uses Default Risk Premium = Interest Rate-Risk Free Rate to calculate the Default Risk Premium, The Default Risk Premium (DRP) measures the incremental return that investors require as compensation for undertaking the risk of holding a risky security, such as a corporate bond. Default Risk Premium is denoted by DRP symbol.

How to calculate Default Risk Premium using this online calculator? To use this online calculator for Default Risk Premium, enter Interest Rate (R_i) & Risk Free Rate (R_f) and hit the calculate button. Here is how the Default Risk Premium calculation can be explained with given input values -> 5.7 = 6-0.3.

FAQ

What is Default Risk Premium?

The Default Risk Premium (DRP) measures the incremental return that investors require as compensation for undertaking the risk of holding a risky security, such as a corporate bond and is represented as DRP = R_i-R_f or Default Risk Premium = Interest Rate-Risk Free Rate. Interest Rate is the amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets & The Risk Free Rate is the theoretical rate of return of an investment with zero risks.

How to calculate Default Risk Premium?

The Default Risk Premium (DRP) measures the incremental return that investors require as compensation for undertaking the risk of holding a risky security, such as a corporate bond is calculated using Default Risk Premium = Interest Rate-Risk Free Rate. To calculate Default Risk Premium, you need Interest Rate (R_i) & Risk Free Rate (R_f). With our tool, you need to enter the respective value for Interest Rate & Risk Free Rate and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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