Average Life

What is 'Average Life'

The length of time the principal of a debt issue is expected to be outstanding. Average life is an average period before a debt is repaid through amortization or sinking fund payments. To calculate the average life, multiply the date of each payment (expressed as a fraction of years or months) by the percentage of total principal that has been paid by that date, summing the results and dividing by the total issue size.


Also called "weighted average maturity" and "weighted average life."

BREAKING DOWN 'Average Life'

Average life is calculated to determine how long it will take to pay the outstanding principal of a debt issue such as a t-bill or bond. For example, assume an annual-pay, four-year bond has a face value of $200 and principal payments of $80 during the first year, $60 for the second year, $40 during the third year and $20 for the fourth (and final) year. The average life for this bond would be calculated as:

average life calculation

Average life = 400 / 200 = 2 years. This bond would have an average life of two years against its maturity of four years.

RELATED TERMS
  1. Yield To Average Life

    The yield on a fixed-income security when the average maturity ...
  2. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
  3. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal ...
  4. Life Expectancy Method

    A method of calculating annuity payments, by dividing the balance ...
  5. Amortization Schedule

    A complete schedule of periodic blended loan payments, showing ...
  6. Average Annual Current Maturities

    The amount of principal paid on outstanding long-term debt during ...
Related Articles
  1. Economics

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  2. Professionals

    Amortization

    Amortization describes the paying off of debt in regular installments over a period of time.
  3. Economics

    What Does Principal Mean?

    For banks, principal refers to the amount due on a loan, and is used to calculate interest payments.
  4. Credit & Loans

    What is an Amortization Schedule?

    An amortization schedule is a table that shows the amounts of principal and interest that comprise each loan payment.
  5. Professionals

    Life Insurance

    Life Insurance
  6. Trading Strategies

    Technical Analysis: Moving Averages

    By Cory Janssen, Chad Langager and Casey MurphyMost chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. ...
  7. Professionals

    Maturities

    Bond Maturities When a bond matures, the principal payment and the last semi-annual interest payment are due. Corporations will select to issue bonds with the maturity type that best fits their ...
  8. Credit & Loans

    Mortgage Basics: The Amortization Schedule

    By Lisa SmithThe amortization schedule for a residential mortgage is a table that provides a breakdown of the schedule of payments from the loan's first required payment to the loan's final payment. ...
  9. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
  10. Options & Futures

    Life Expectancy: It's More Than Just A Number

    Find out how this factor determines your life insurance premiums and affects your payout.
RELATED FAQS
  1. Why does the majority of my mortgage payment start out as interest and gradually ...

    When you make a mortgage payment, the amount paid is a combination of an interest charge and principal repayment. Over the ... Read Answer >>
  2. In the context of a bond, what does the principal refer to?

    Get introduced to the world of bond investing and learn what the term "principal" means in reference to a corporate or government ... Read Answer >>
  3. What are the responsibilities of the principal in a company?

    Learn to differentiate between some of the many definitions and responsibilities of a "principal" as it relates to business ... Read Answer >>
  4. I have discovered that a bond I am interested in has a sinking fund. What does this ...

    First, understand that a sinking fund provision is really just a pool of money set aside by a corporation to help repay a ... Read Answer >>
  5. Why is more interest paid over the life of a loan when it is capitalized?

    Learn what it means to capitalize interest on a loan. Understand why more interest is paid over the life of a loan when it ... Read Answer >>
  6. What is the weighted average of outstanding shares? How is it calculated?

    The amount of shares outstanding in a company will often change due to a company issuing new shares, repurchasing and retiring ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center