Distinguish between the concepts of the inflation premium and the defa

Distinguish between the concepts of the inflation premium and the default-risk premium.

What will be an ideal response?

ANSWER

Inflation premium is a premium to compensate for anticipated inflation that is equal to the price change expected to
occur over the life of the bond or investment instrument.
Default-risk premium is the additional return required by investors to compensate them for the risk of default. It is
calculated as the difference between a U.S. Treasury bond and a corporate bond of the same maturity and
marketability.