Average life is the average length of time it takes to pay off the outstanding principal on a debt instrument, such as a treasury bill, bond, loan, or mortgage-backed security.
The life expectancy calculation is useful for investors who want to compare the risk associated with different investments before making an investment decision.
Most investors will choose investments with a shorter average life, as this means that they will receive a return on investment faster.
Prepayment risk occurs when a loan borrower or bond issuer repays the principal amount of the debt ahead of schedule, which shortens the average investment term and reduces the amount of interest the investor receives.
Hard call protection or absolute call protection is a condition of a callable bond, according to which the issuer cannot exercise the call and redeem the bond before a specified date, usually three to five years from the date of issue.