Weighted-average Life

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.