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.
The taxable equivalent yield is equal to the tax free yield divided by the sum of 100 minus the current tax bracket. For example the taxable equivalent yield of a 6.50% tax free bond for someone in the 32% tax bracket would be: 6.5/(100-32) = 0.0955882 or 9.56
The yield that would have to be earned on a security to pay as much, after tax, as what is earned from a tax-exempt bond.
A measure of how much after-tax income a municipal bond fund will provide to a shareholder.
The yield that an investor would have to learn on a taxable investment so that she obtains the same yield as on a tax-free investment. Calculate it by dividing the tax-free investment rate (say 5%) by "1 minus the marginal tax rate" (say 1-30% = 70%): 5%/.7 ~ 7.1%.
An adjustment made to a tax-free yield for comparison to taxable yields.
The yield an investor would have to get on a U.S. government or taxable corporate bond to match the same after-tax yield on a municipal bond.
The taxable equivalent yield (TEY) is a calculated value that calculates the pre-tax yield an investor would need to get so that after paying tax, the after tax yield would be equal to the tax-free yield on a municipal bond.