Definitions for "Taxable Equivalent Yield"
Keywords:  yield, municipal, exempt, tey, investor
The yield a taxable investment must earn in order to match the tax-free return offered on a municipal bond. This calculation is an important resource for determining which investments - taxable or tax-exempt - would yield more. The taxable equivalent yield calculation can help determine which investment offers the best return when all taxes - Federal, state and local - are taken into consideration. When state and local taxes are taken into consideration for bonds issued by the state in which the investor lives, the taxable equivalent yield is higher, making the tax-exempt investment even more appealing.
The yield an investor would have to earn from a taxable security to equal the value of a tax-exempt security of the same credit quality.
The yield an investor would have to obtain on a taxable corporate or U.S. treasury bond to match the same after-tax yield on a municipal bond.