Default Risk Premium Calculator

Calculate Default Risk Premium



Formula

The formula to calculate the default risk premium is:

\[ DRP = RRA - RRT \]

Where:

What is Default Risk Premium?

In short, the default risk premium is a representation of the risk associated with an investment when compared to something like a treasury bond that has, in theory, almost no risk. It is calculated by subtracting the rate of return of a risk-free asset from the rate of return on the asset being considered.

Example Calculations

Example 1:

Using the formula:

\[ DRP = 8 - 3 = 5\% \]

Example 2:

Using the formula:

\[ DRP = 12 - 4 = 8\% \]