Weighted Average Life (WAL)

The weighted average life (WAL) of a bond is the average time until all of the bond's cash flows have been paid. It is calculated by taking the present value of each cash flow and weighting it by its time to maturity. The WAL is used to determine the interest rate sensitivity of a bond, as well as its duration.

The WAL is calculated as follows:

```
WAL = S(PV(CF) * t) / S(PV(CF))
```

where:

* PV(CF) is the present value of the cash flow
* t is the time to maturity of the cash flow
* S is the summation operator

The WAL is a useful tool for investors because it allows them to compare the interest rate sensitivity of different bonds. Bonds with longer WALs are more sensitive to interest rate changes than bonds with shorter WALs. This is because the longer the WAL, the more time there is for interest rates to change.

The WAL is also used to calculate the duration of a bond. Duration is a measure of the bond's price sensitivity to interest rate changes. The duration of a bond is equal to the weighted average time until all of the bond's cash flows have been paid.

The WAL and duration are both important tools for investors who are looking to manage their interest rate risk. By understanding the WAL and duration of a bond, investors can make informed decisions about which bonds to buy and sell.

In addition to the WAL and duration, there are a number of other factors that investors should consider when evaluating a bond. These factors include the bond's credit rating, yield, and liquidity. By considering all of these factors, investors can make informed decisions about which bonds to add to their portfolios.