Default Risk Premium Calculator

✖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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Formula

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Default Risk Premium

Formula

`"DRP" = "R"_{"i"}-"R"_{"f"}`

Example

`"5.7"="6"-"0.3"`

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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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Verified by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

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< 20 Risk Management Calculators

Risk Adjusted Return on Capital

Go Risk Adjusted Return on Capital = (Revenue-Expenses-Expected Loss+Income From Capital)/Capital Cost

Sortino Ratio

Go Sortino Ratio = (Expected Portfolio Return-Risk Free Rate)/Standard Deviation of Downside

Maximum Drawdown

Go Maximum Drawdown = ((Trough Value-Peak Value)/Peak Value)*100

Modigliani-Modigliani Measure

Go Modigliani-Modigliani measure = Return on Adjusted Portfolio-Return on Market Portfolio

Interest Rate Risk

Go Interest Rate Risk = (Original Price-New Price)/New Price

Sterling Ratio

Go Sterling Ratio = (Compound Annual Growth Rate/(Average Maximum Drawdown-10))*-1

Risk Tolerance

Go Risk Tolerance = (Public Equity Exposure*0.35)/Monthly Gross Income

Market Risk Premium

Go Market Risk Premium = Expected Equity Market Rate-Risk Free Rate

Basis Risk

Go Basis Risk = Future Price of Contract-Spot Price of Hedged Asset

Credit Value at Risk

Go Credit Value at Risk = Worst Credit Loss-Expected Credit Loss

Economic Capital

Go Economic Capital = Earnings at Risk/Required Rate of Return

Calmar Ratio

Go Calmar Ratio = (Average Rate of Return/Maximum Drawdown)*-1

Upside/Downside Ratio

Go Upside/Downside Ratio = Advancing Issues/Declining Issues

Credit Spread

Go Credit Spread = Corporate Bond Yield-Treasury Bond Yield

Probability of Default Regression Model

Go Probability of Default = 1/(1+exp(-Linear Combination))

Default Risk Premium

Go Default Risk Premium = Interest Rate-Risk Free Rate

Pain Ratio

Go Pain Ratio = Effective Return/Pain Index

Risk Exposure

Go Risk Exposure = Risk Impact*Probability

Risk Determination

Go Risk = Risk Impact*Likelihood

Loss Given Default

Go Loss Given Default = 1-Recovery Rate

Default Risk Premium Formula

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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