Question: Explain how a default premium can arise, and what would cause it to increase. A default premium comes about to compensate (CHOOSE BETWEEN: borrowers OR

Explain how a default premium can arise, and what would cause it to increase.

A default premium comes about to compensate (CHOOSE BETWEEN: borrowers OR lenders) for when(CHOOSE BETWEEN:borrowers do not OR lenders do OR lenders do not OR borrowers do) payback their loans. The default premium would increase if the fraction of (CHOOSE BETWEEN: good borrowers OR bad borrowers) in the population decreases.

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