default premium

Definition

An amount added to a risk free bond to compensate investors for assuming the risk of default. A default premium is often paid by entities with poor credit histories as they are more likely to default on its loans. As it is with companies with high debt-to-income ratios, default premiums are added in order to entice lenders into purchasing their bonds. Thus, the risk borne by the investors is compensated by the bond's higher yield.
Browse Definitions by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
default judgment default rate