A bank lends $1 million to a company for expansion plans. The company agrees to make monthly interest payments and repay the full principal by the loan's end date. However, if the company faces financial troubles due to poor management, market conditions, etc., it may struggle to make the required loan payments. In this situation, there is a risk that the company may default by failing to make scheduled interest payments or repaying the principal when due. If the company defaults, the bank risks losing part or all of the $1 million loan amount, depending on the default extent and value of any collateral provided by the borrower. This exemplifies default risk, where the lender (bank) faces the possibility of the borrower (company) not fulfilling its debt obligations as agreed upon.