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Trading and Investment Terms

Weighted average Maturity

The average time it takes for securities in a portfolio to mature.

Weighted average maturity measures the sensitivity of fixed-income portfolios to interest rate changes

For example

Suppose mortgage-backed security contains two mortgages, one worth $10,000 and one worth $20,000, for a total of $30,000. 

The $10,000 mortgage matures in five years, and the $20,000 mortgage in 10 years. 

The weighted average remaining maturity is calculated as:

 

WAM = ($10,000 / $30,000) * 5 years + ($20,000 / $30,000) * 10 years = 8 1/3 years

 

The weighted average maturity is also known as the weighted average remaining maturity

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