Investors expect a risk premium to compensate for the borrower's riskiness in investments.
Risk premium compensates holders for risks inherent to an investment and is incorporated into the rate of return quoted for an investment. Investors expect a risk premium to account for the borrower's riskiness. For example, when comparing assets with similar coupon rates but different maturities, the asset with a longer time to maturity will have a higher yield due to the risk premium for time to maturity.
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