What is Average Maturity ?
Definition of Average Maturity
Average maturity is the time before fixed income investment or bond mature.
It is a measurement of maturity that makes it possible that investment or bond might be called back to the issuer.
If the time period is longer, then higher will be the risk of the rise in interest rate. Average maturity can be calculated by weighting the maturity of each security of the portfolio by the market value of the security, then averaging these weighted figures.
Explanation of Average Maturity
Average maturity is the most effective way to calculate the exposure of the bond or portfolio. It is applicable only when the investor has a portfolio, consisting of different bands.
Generally, the simple average method could be a measure of misleading, so having sufficient information is necessary for any investor in order to deal with interest rate risk of the portfolio.