The recent regulatory focus on money market funds both in Europe and the US has turned attention back to the ways in which fund interest rate risk is measured. The two most common variables are weighted average maturity (WAM) and weighted average life (WAL).
Weighted Average Maturity (WAM)
The traditional WAM calculation is a basic measure of a money market fund’s maturity profile. To calculate the WAM of a portfolio, each security’s percentage of the total of the portfolio is multiplied by its interest reset date and these numbers are then summed.
Take a $10m portfolio containing the following four bonds:
$4m with a 60 day maturity
$3m with a 28 day maturity
$1m with a 20 day maturity
$2m with a seven day maturity
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