Weighted Average Life - WAL
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Definition of 'Weighted Average Life - WAL'
The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, WAL tells how many years it will take to pay half of the outstanding principal.
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Investopedia explains 'Weighted Average Life - WAL'
The time weightings are based on the principal paydowns - the higher the dollar amount, the more weight that corresponding time period will have. For example, if the majority of the repayment amount is in 10 years the WAL will be closer to 10 years. Let's say there's an outstanding bond with five years of $1,000 annual payments. The weighted average life would be three years, assuming payment is made at the end of each year. This indicates that after three years over half of the payments will be made.
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Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality.
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Find out how weighted average life guards against prepayment risk.
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We explain the calculation and payment process as well as the amortization schedule of home loans.
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