The article How to Find a Default Risk Premium on a Corporate Bond originally appeared on Fool.com. Try any of our Foolish newsletter services free for 30 days.

Subtracting this from the bond's APY gives a default risk premium of 2%. You've done your homework on risk; now make sure your broker is up to snuff, too.

However, the realized premium, at about 0.8 percent, has been only about half as much, providing only a modest premium for accepting the risks of corporate debt.

For example, let's say that Company X is issuing bonds with a 7% APY. If the risk-free rate is 0.5%, inflation is estimated to be 2.5%, and the bond's liquidity and maturity premiums are both 1% ...

Yield differentials among the rating categories vary over time, according to investors’ prevailing level of concern about default and price risk. An actively managed corporate bond portfolio may ...

The yields and spread of the high PD and low PD portfolios diverge significantly, which cannot be easily explained by default risk. The non-default yields on low PD bonds rise from 4% to 6%, while ...

Bond prices, default probabilities and risk premiums John Hull, Mirela Predescu, Alan White Tweet. Facebook. LinkedIn. Save this article. Send to. Print this page. Abstract ... Default and recovery ...

How Credit Rating Risk Affects Corporate Bonds One of the key risks for corporate bonds is credit risk , or the possibility that a borrower will be unable to repay its obligations on schedule.

To calculate a bond's default risk premium, subtract the rate of return for a risk-free bond from the rate of return of the corporate bond you wish to purchase. Here's how to do it. Step 1 ...