Average life refers to the length of time that the principal of a bond is expected to be outstanding before it is repaid through amortization or sinking fund payments. The average life can be calculated by multiplying the date of each payment by the percentage of principal paid.
For example, suppose that a municipality has a $100 outstanding bond and pays $10 during the first year, $40 during the second year, and $50 during the third year. The average life of the bond would be 2.4 years or 240 divided by 100 by this calculation.
