Weighted-average Life
In finance, the weighted-average life (WAL) of an amortizing loan or amortizing bond, also called average life, is the weighted average of the times of the principal repayments: it's the average time until a dollar of principal is repaid.
In a formula,
where:
- is the (total) principal,
- is the principal repayment in coupon, hence
- is the fraction of the principal repaid in coupon, and
- is the time (in years) from the start to coupon .
If desired, can be expanded as for a monthly bond, where is the fraction of a month between settlement date and first cash flow date.
Read more about Weighted-average Life: Related Concepts, Applications, Examples, Total Interest, WALs of Classes of Loans
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