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F. Naz
F. Naz, B.Com
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Experience:  Have completed B.Com and CA Finalist
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How to calculate the default risk premium?

Customer Question

How to calculate the default risk premium?
Submitted: 1 year ago.
Category: Single Problem
Customer: replied 1 year ago.
Assume the following risk: risk free rate is 2.5%, inflation Year 1 is 2.5%, Year 2 is 3.5% and Year 3 is 4.5%. You have invested in a three-year bond with an annual interest rate of 7.8%
Required: Calculate the default risk premium for your investment – show your work.
Expert:  F. Naz replied 1 year ago.
7.8-2.5-4.5 = 0.8% is the default risk premium Please rate the answer so I get credit for my efforts, thanks.

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