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Yield to Average Life
A calculation used where bonds are retired systematically during the life of the issue, as in a sinking fund. To satisfy its sinking fund requirements the issuer will buy its bonds on the open market.
If the bonds are trading below par, there is automatic price support for such bonds. Therefore, they are apt to trade on a yield-to-average-life basis. In this scenario, this yield calculation will be used instead of "yield to maturity" or "yield to call."
NEXT: Yield to Maturity