What is 'Weighted Average Life  WAL'
The weighted average life (WAL) is the average length of time that each dollar of unpaid principal on a loan, a mortgage or an amortizing bond remains outstanding. Calculating the WAL shows an investor, an analyst or a portfolio manager how many years it will take to receive half the amount of the outstanding principal.
BREAKING DOWN 'Weighted Average Life  WAL'
The time weightings are based on the principal paydowns. A higher dollar amount means the corresponding time period has more weight in the WAL. For example, if the majority of the repayment amount is in 10 years, the weighted average life will be closer to 10 years.
The WAL gives investors or analysts a rough idea of how quickly the bond in question pays out returns. Since rational investors want to receive returns earlier, if two bonds were compared, the investor would select the one with the shorter WAL.
Weighted Average Life Calculation Example
There are four steps involved in calculating an amortizing bond's WAL. Assume a bond makes one payment per year. Over the next five years, the bond's payments are $1,000, $2,000, $4,000, $6,000 and $10,000. The first step of the calculation is to take each of these payments and multiply them by the number of years until the payment occurs. In this example, these values would be:
Year 1 = 1 x $1,000 = $1,000
Year 2 = 2 x $2,000 = $4,000
Year 3 = 3 x $4,000 = $12,000
Year 4 = 4 x $6,000 = $24,000
Year 5 = 5 x $10,000 = $50,000
The second step in the calculation is to add these weighted amounts together. In this example, the total weighted payments equal $91,000. Step three is to add up the bond's total unweighted payments. In this example, the total is $23,000. The final step is to take the total weighted payments and divide this value by the total unweighted payments to get the WAL:
Weighted average life = $91,000 / $23,000 = 3.96 years
The largest payment is the final payment, so the WAL is close to the total fiveyear term of the bond. If, for example, the year two and year five payments were switched, the weighted average life would be much lower:
Year 1 = 1 x $1,000 = $1,000
Year 2 = 2 x $10,000 = $20,000
Year 3 = 3 x $4,000 = $12,000
Year 4 = 4 x $6,000 = $24,000
Year 5 = 5 x $2,000 = $10,000
Weighted average life = $67,000 / $23,000 = 2.91 years

Average Life
Average life is the length of time the principal of a debt issue ... 
Weighted Average Credit Rating
The weighted average credit rating is the weighted average rating ... 
Weighted Average Market Capitalization
Weighted average market capitalization refers to a type of stock ... 
Weighted Alpha
Weighted alpha is a weighted measure of how much a stock has ... 
CapitalizationWeighted Index
Capitalizationweighted index is a market index in which stocks ... 
Weighted Average Remaining Term ...
Weighted Average Remaining Term (WART) is a calculation used ...

Investing
4 Ways Simple Interest Is Used In Real Life
Simple interest works in your favor when you're a borrower, but against you when you're an investor. 
Financial Advisor
Example of Applying Modern Portfolio Theory (MPS)
Modern Portfolio Theory: brush up on key mathematical framework used in investment portfolio construction. 
Investing
The Risks Of MortgageBacked Securities
Find out how weighted average life guards against prepayment risk. 
Investing
Investing $100 a Month in Stocks for 20 Years
Learn how a monthly investment of just $100 can help build a future nest egg using properly diversified stocks or stock mutual funds. 
Investing
Corporate Bond Basics: Learn to Invest
Understand the basics of corporate bonds to increase your chances of positive returns. 
Investing
How Interest Rates Impact Bond Values
The relationship between interest rates and bond prices can seem complicated. Here's how it works. 
Financial Advisor
Calculate PV of different bond type with Excel
To determine the value of a bond today â€” for a fixed principal (par value) to be repaid in the future â€” we can use an Excel spreadsheet.

What is the weighted average of outstanding shares? How is it calculated?
The weighted average of outstanding shares is a calculation that incorporates any changes in the amount of outstanding shares ... Read Answer >> 
How do I use Excel to calculate a weighted average?
Learn about the calculation and interpretation of weighted averages, including how to compute a weighted average using Microsoft ... Read Answer >> 
How is the value of the S&P 500 calculated?
The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The value ... Read Answer >> 
What's the difference between moving average, weighted moving average and exponential ...
Moving averages are one of the most popular tools used by active traders to measure momentum. In this FAQ, we'll take a look ... Read Answer >> 
Why do most of my mortgage payments start out as interest?
The first thing a firsttime home buyer needs to know is that over the life of the mortgage, the portions of interest to ... Read Answer >>