The _____ premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.

Question

Quizplus · Accepted Answer

Default risk premium is the additional interest rate that investors demand as compensation against the possibility that the bond issuer may default on their payments. This compensation is demanded by investors as a result of the relatively higher level of risk involved in investing in a bond that has a higher likelihood of default.

The _____ Premium Is That Portion of a Nominal Interest