Analysis of Asset Allocation

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Bonds - Yield to Average Life
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DEFINITION

The Yield to Average Life is a Yield to Maturity assuming that a portion of the principal is paid before the maturity date. 

FORMULA

The formula is the same as the one for the Yield to Maturity except the M represents the average number of years the bond is still outstanding.

With:

Y = yield to maturity expressed in %.
R = coupon rate.
P = price of the bond.
M = the average number of years the bond is outstanding.

The relation is:

Yield Curve

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