Yield To Average Life

Investors can estimate the actual return from a bond, even without the exact maturity date, with yield to average life. Yield to average life is a calculation that can help them determine if they should buy more bonds, in the case that they’re trading at lower than their value.

How is this done? By assuming that the bond matures based on the day calculated by its average life and average redemption price, rather than its face value (known as the par price).

Just another nifty tool to help investors speculate on where to shop for their next investment. We’re not talking life insurance here. We’re talking bonds.

You know how you’re slowly dying a little bit every day? Well, there are bonds that slowly die every day, too. You can calculate how quickly they die (okay, “retire” is the proper word to use here) using the yield to average life calculation.

The yield to average life calculation tells investors the estimated return from a bond without using the exact maturity date. More specifically, it tells you how long it will take to recover half of the bond’s face value. The faster you get the money, the lower the risk of default. Plus, the faster you get the money, the sooner you can invest it. Or...buy ice cream with it. Whichever you think will be the wisest use of your dough.