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
Famous quotes containing the word life:
“I stand in awe of my body, this matter to which I am bound has become so strange to me. I fear not spirits, ghosts, of which I am one,—that my body might,—but I fear bodies, I tremble to meet them. What is this Titan that has possession of me? Talk of mysteries! Think of our life in nature,—daily to be shown matter, to come in contact with it,—rocks, trees, wind on our cheeks! the solid earth! the actual world! the common sense! Contact! Contact! Who are we? where are we?”
—Henry David Thoreau (1817–1862)