Question

The primary risk that a lender accepts is when there is a concern of the debtor not paying off the loan.

Risk Premium

Default Risk

Debt-Rating

Prime Risk

Answer 1

Default Risk is the primary risk that a lender accepts is when there is a concern of the debtor not paying off the loan.

Default risk is the chance that a company or individual will be unable to make the required payments on their debt obligation.

Therefore, default risk is the correct answer.

A risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset in order to induce an individual to hold the risky asset rather than the risk-free asset.

So a risk premium is not concerned by the debtor not paying the loan amount.

Debt rating is a system for measuring company's, or organization's ability to pay back its debts and any interest on those debts So it is a measure to assess the probability of risk but not the risk in itself.

In general there is nothing like a prime risk and hence the option is irrelevant.