Enter the rate of return for a risk-free asset and the rate of return of the asset you wish to price into the default risk premium calculator below.

- Real Interest Rate Calculator
- Return on Equity Calculator
- Earnings Per Share Calculator
- Cost of Equity Calculator
- Risk Premium Calculator

## Default Risk Premium Formula

The formula use in the default risk premium calculator above is as follows:

DRP = RRA - RRT

- Where DRP is the default risk premium
- RRA is the rate of return of the asset you are investing in
- RRT is the rate of return of a risk-free asset i.e. a treasury bond.

To calculate default risk premium, subtract the rate of return of a risk free asset from the rate of return on the asset being considered.

## Default Risk Premium Definition

In short, this value 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.

## How to calculate default risk premium?

How to calculate default risk premium?

**First, determine the return rate of your asset.**Calculate or estimate the annual return of the asset being invested in.

**Next, determine the rate of return of a risk free asset.**This is typically something like a savings bond and they usually return 1-2%.

**Finally, calculate the default risk premium.**Using the formula above, calculate the default risk premium.

## FAQ

**What is a default risk premium?**

A default risk premium is defined as the difference between the return on an asset and the return on a risk-free asset.