Weighted Average Maturity (WAM)

The weighted average maturity (WAM) of a bond portfolio is the average time until all of the bonds in the portfolio mature. It is calculated by adding the time to maturity of each bond in the portfolio, weighting each bond by its market value, and then dividing by the total market value of the portfolio.

The WAM is a measure of the liquidity of a bond portfolio. A bond portfolio with a longer WAM is less liquid than a bond portfolio with a shorter WAM. This is because it takes longer to sell a bond with a longer maturity than it does to sell a bond with a shorter maturity.

The WAM is also used to calculate the yield to maturity (YTM) of a bond portfolio. The YTM is the internal rate of return that a bond portfolio would generate if all of the bonds in the portfolio were held to maturity. The WAM is used in the calculation of the YTM because it takes into account the time value of money.

The WAM is a useful tool for investors who are looking for a measure of the liquidity and yield of a bond portfolio. It can also be used to compare different bond portfolios to see which one is more liquid or has a higher yield.

Here are some additional points about the weighted average maturity:

• The WAM is calculated using the following formula:

WAM = S(MVi * Ti) / SMVi

where:

• WAM is the weighted average maturity

• MVi is the market value of bond i

• Ti is the time to maturity of bond i

• The WAM can be used to compare different bond portfolios to see which one has a longer or shorter average maturity.

• The WAM can also be used to calculate the yield to maturity (YTM) of a bond portfolio.

• The WAM is a useful tool for investors who are looking for a measure of the liquidity and yield of a bond portfolio.