• Money
    • Budget
    • Shop
    • Travel
    • Stories
  • Career
    • Advice
    • Entrepreneurship
    • Freelance
    • Small Business
  • Investing
    • General
    • IRA + 401K
    • Stocks + Bonds
    • Retirement Planning
    • Estate
  • The Basics
    • Student Loans
    • Credit Cards
    • Debt
    • Taxes
    • More
  1. Home
  2. Investing
  3. Stocks + Bonds
  4. How to Calculate the Weighted Average Life for Bonds

How to Calculate the Weighted Average Life for Bonds

By: James Green
  • Share
  • Share on Facebook

The weighted average life of a bond is the time it takes for the loan issuer to repay all of the principal back to the investor, and each repayment time is weighted by the repayment amount. The weighted average life of most bonds is simply its time until maturity. For amortizing bonds, which repay parts of the principal along with coupon payments over the course of the lifetime of the bond, weighted average life requires a little bit of calculation.

Step

Multiply each principal repayment by the number of each payment period. For example, if you have a bond with an outstanding principal of $100, and $10 was repaid in the first year, $20 was repaid in the second year, $30 was repaid in the third year and the remaining $40 was repaid in the fourth year, then multiplying each payment period's number by its repayment amount gives $10 ($10 x 1), $40 ($20 x 2), $90 ($30 x 3) and $160 ($40 x 4). These are the weighted payments.

Step

Add up the weighted payments. Using the same example, adding up $10, $40, $90 and $160 gives $300. This is the weighted total of principal repayments.

Video of the Day

Step

Divide the weighted total of principal repayments by the outstanding principal, or face value of the bond. So, if the bond's face value is $100, and the weighted total of principal repayments is $300, dividing $300 by $100 gives 3. The weighted average life of the amortizing bond is thus three years.



Show Comments

Related Articles

How to Cash in Premium Bonds

How to Cash in Premium Bonds

Investing
Stocks + Bonds
By: Melissa Lewis
How to Find Savings Bonds in Your Name

How to Find Savings Bonds in Your Name

Investing
Stocks + Bonds
By: Jessica Broadmoor

PARTNER CONTENT

7 Habits of Highly (Financially) Effective People

7 Habits of Highly (Financially) Effective People

What Is a 90-Day Loan Note With a Bank?

What Is a 90-Day Loan Note With a Bank?

The Basics
Personal Loans
By: Josh Victor
The Importance of the Average Traded Price (ATP) in Technical Analysis

The Importance of the Average Traded Price (ATP) in Technical Analysis

Investing
Stocks + Bonds
By: Hunkar Ozyasar
How to Change Ownership of EE Savings Bonds

How to Change Ownership of EE Savings Bonds

Investing
Stocks + Bonds
By: Mike Keenan

Get Weekly Savings& Finance Tips.

  • Money
  • Career
  • Investing
  • The Basics
  • About
  • Contact Us
  • Terms
  • Privacy Policy
  • Copyright Policy
© 2019 Leaf Group Ltd. Leaf Group Media

Get Weekly Savings
& Finance Tips.

Money Made Easier.

Please enter a valid email.