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equivalent taxable yield

    0.06 sec.
Equivalent taxable yield
The yield that must be offered on a taxable bond issue to give the same after-tax yield as a tax-exempt issue.

equivalent taxable yield
The taxable return that must be achieved in order to equal, on an aftertax basis, a given tax-exempt return. Equivalent taxable yield is calculated by dividing the available tax-exempt yield by one minus the investor's marginal tax rate. For example, a tax-exempt return of 9% for an investor in a 40% marginal tax bracket would require a taxable return of .09/0.6 , or 15%, to produce the same aftertax equivalent.
Does the purchase of tax-free securities make sense?

Analyze investments for risk related to return (payout and growth) and yield. Tax-free securities have less risk, but their return is usually lower than riskier growth investments, corporate bonds, or preferred stocks. Determine the equivalent taxable yield of a tax-free security (yield divided by the difference of one minus your marginal tax bracket). Compare the investment to alternative securities with similar or higher yields or returns. Invest for a higher return if you are comfortable with the risk. Tax-free securities make sense for high-income taxpayers looking for safer, certain returns.

Jeffrey S. Levine, CPA, MST, Alkon & Levine, PC, Newton, MA

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To compare municipal and taxable bonds, the yield on a municipal bond can be converted to an equivalent taxable yield.
 
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