What is the equation for calculating the default risk premium?
What is the equation for calculating the default risk premium?
A risk premium is the minimum difference between the expected value of an uncertain bet that a person is willing to take and the certain value that he is indifferent to.
I believe he asked for the formula not the dictionary definition.
As far as I know there isn't one. The closest I've ever gotten is:
http://gaap.cz/main_page/obrazky/Image1.jpg
Who has the simplest way to calculate the default risk premium, given the yield, real rate of return, inflation premium, liquidity premium, & maturity risk premium with a financial calclator?
risk premium= Km - Krf
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