yield to average life

Yield to average life

A yield calculation in which bonds are retired routinely during the life of the issue. Since the issuer buys its own bonds on the open market because of sinking fund requirements, if the bonds are trading below par, this action provides automatic price support for these bonds and they will usually trade on a yield to average life basis.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Yield to Average Life

A calculation of the yield of a bond assuming the bond's average life. The yield to average life is useful if a bond is likely to be retired before maturity because of sinking fund requirements. This method helps the investor determine how much he/she is likely to make from a given bond investment, regardless of its actual maturity. See also: Yield to worst.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

yield to average life

The average yield on a fixed-income security assuming an average life for the security. In the case of bonds, average life may be significantly less than the number of years until maturity because of sinking fund requirements. Thus, the investor may be forced to sell the bond back before maturity.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.