That portion of the risk premium that is based on the ability of the borrower to repay principal and interest is the:
A)Maturity risk
B)Default risk
C)Seniority risk
D)Business risk

Question

Quizplus · Accepted Answer

Default risk refers to the risk that the borrower may default on their loan and be unable to repay both principal and interest. The risk premium associated with default risk reflects the lender's assessment of the probability of default and the potential losses that may occur if default does happen. Maturity risk, seniority risk, and business risk refer to other factors that may affect the risk premium.

That Portion of the Risk Premium That Is Based on the Ability