Accurately determine the weighted average time until maturity for your bond portfolio or loan investments. Essential for understanding portfolio risk and sensitivity to interest rate changes.
Portfolio Inputs
Enter the Face Value (Principal) and Time to Maturity for up to 5 assets.
Weighted Average Maturity (WAM) is a vital financial metric used to measure the average time until a portfolio of debt securities—such as mortgages, bonds, or other fixed-income instruments—matures. Unlike a simple average, WAM gives more importance ("weight") to assets with larger principal balances.
Investors and portfolio managers use WAM to assess the interest rate risk and liquidity profile of a fund. A higher WAM typically indicates higher sensitivity to interest rate fluctuations, while a lower WAM suggests the portfolio will turn over into cash more quickly. It is particularly common in the analysis of Money Market Funds and Mortgage-Backed Securities (MBS).
Calculate Weighted Average Maturity in Excel: The Formula
To understand how to calculate weighted average maturity in Excel or manually, you must understand the underlying mathematics. The formula sums the product of each asset's face value and its time to maturity, then divides by the total face value of the portfolio.
WAM = Σ (Face Value × Time to Maturity) / Σ (Total Face Value)
Variable Definitions
Variable
Meaning
Typical Unit
Face Value (Principal)
The amount of debt outstanding
Currency ($)
Time to Maturity
Time remaining until the debt is repaid
Years or Days
Weight
The percentage of the total portfolio an asset represents
Percentage (%)
Practical Examples
Example 1: A Simple Bond Portfolio
Imagine an investor holds two bonds. Bond A has a value of $10,000 maturing in 2 years. Bond B has a value of $90,000 maturing in 10 years.
Unweighted Average: (2 + 10) / 2 = 6 years.
Weighted Calculation: Since Bond B represents 90% of the money, the WAM should be closer to 10.
The WAM of 9.2 years accurately reflects that most of the capital is tied up for a decade.
Example 2: Mortgage Backed Securities (MBS)
In a pool of mortgages, prepayments change the effective maturity. If you calculate weighted average maturity in Excel for an MBS, you typically use the "remaining term" for each loan in the pool. If a pool has $1M at 20 years and $1M at 30 years, the WAM is exactly 25 years because the weights are equal.
How to Use This WAM Calculator & Excel Guide
While our tool above provides instant results, financial analysts often need to calculate weighted average maturity in Excel for large datasets.
Step-by-Step Excel Instructions
Column A: List your Principal Balances (e.g., Cells A2:A10).
Column B: List the Time to Maturity in Years (e.g., Cells B2:B10).
The Formula: In a new cell, use the SUMPRODUCT function.
=SUMPRODUCT(A2:A10, B2:B10) / SUM(A2:A10)
This single Excel formula multiplies every principal by its maturity, sums them up, and divides by the total principal, giving you the WAM instantly.
Using the Web Calculator
Simply enter the Principal Balance and Maturity (in years) for up to 5 distinct assets in the fields above. The calculator updates automatically. Use the "Reset" button to clear data or "Copy Results" to paste the analysis into a report.
Key Factors That Affect WAM Results
When you calculate weighted average maturity in Excel or analyze a portfolio, consider these six critical factors:
Principal Size: Large assets dominate the WAM. A single large long-term bond can skew the average significantly higher.
Time decay: As time passes, the "Time to Maturity" decreases daily, naturally lowering the WAM unless new long-term assets are purchased.
Prepayments: For mortgages, borrowers paying off loans early reduces the effective maturity, often shortening the WAM unexpectedly.
Interest Rate Volatility: Rising rates often discourage refinancing, potentially extending the effective WAM of mortgage pools.
Call Options: Callable bonds may be redeemed early by issuers, drastically shortening the actual maturity compared to the stated maturity.
Portfolio Turnover: Active trading changes the composition of weights, requiring frequent recalculation of the WAM.
Frequently Asked Questions (FAQ)
What is the difference between WAM and WAL?
Weighted Average Maturity (WAM) looks at the legal final maturity date. Weighted Average Life (WAL) considers the timing of principal repayments and prepayments. WAL is often shorter than WAM.
Why is WAM important for money market funds?
Regulations (like SEC Rule 2a-7) limit the WAM of money market funds (typically to 60 days) to ensure liquidity and low risk.
Can WAM be negative?
No. Time to maturity and principal amounts are always non-negative values.
Does WAM measure yield?
No. WAM measures time risk. To measure return, you would calculate the Weighted Average Yield or Coupon.
How often should I recalculate WAM?
Ideally daily for active funds, or monthly for passive portfolios, as time decay affects the result every single day.
Can I use days instead of years?
Yes. If you input maturity in days, the result will be in days. Just ensure you are consistent across all assets.
What is a "laddered" portfolio?
A strategy where bonds mature at different intervals (e.g., 1, 3, 5 years). WAM helps verify if the ladder is balanced correctly.
Does inflation affect WAM calculation?
Not directly in the math, but inflation expectations drive the decision to target a shorter or longer WAM.
Related Tools and Internal Resources
Enhance your financial analysis with our suite of related calculators: