AVERAGE LIFE – With respect to an issue of bonds, the weighted period of time required to repay half of the issue through scheduled principal payments (e.g., maturity, sinking fund redemption, etc.). The average life, also referred to as the “weighted average life” or “weighted average maturity,” is a reflection of the rapidity with which the principal of an issue is expected to be paid. Under one commonly used calculation method, average life is equal to the total bond years divided by the total number of bonds (one bond equals $1,000 par amount, regardless of actual denomination). Note that this computation method does not take into account the time value of the principal amounts. The formula for this computation is:
See: BOND YEAR; EXPECTED AVERAGE LIFE; SINKER.
