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25 May, 16:55

What represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected?

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  1. 25 May, 18:59
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    Answer: Default risk premium

    Explanation:

    The default risk premium is one of the type of the additional amount or payment that is usually calculated by using the effective concept as it is difference between the risk free rate and the overall debt interest rate.

    The main objective of the default risk premium is make the additional type of payment in the form of compensation to the borrower and all an organizations or companies are indirectly paying the default risk premium.

    According to the given question, the Default risk premium is the term which is used to represent the additional type of compensation which is specifically provided by the bond holder.

    Therefore, Default risk premium is the correct answer.
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