tax-equivalent yield

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Tax-equivalent yield

The pre-tax yield required from a taxable bond in order to equal the tax-free yield of a municipal bond.

Tax-Equivalent Yield

The yield of a taxable investment that equals the yield of a tax-free investment with a lower stated yield. A corporate bond yields less than its stated interest rate because of taxation whereas a tax-exempt municipal bond does not. Thus, a municipal bond that pays a lower interest rate will often net the bondholder more than a corporate bond with a slightly higher interest rate, depending upon one's tax bracket. The tax equivalent yield is the extra yield required on a corporate bond to equal the post-tax yield of a municipal bond. See also: Municipals-over-bonds spread, After-tax basis.

tax-equivalent yield

The pretax yield that provides the same return as a specified aftertax yield. Tax-equivalent yield is calculated by dividing tax-free yield by the difference obtained from subtracting the applicable tax rate from 1. For example, for an investor who pays taxes at a rate of 40%, an aftertax yield of 6% has a tax-equivalent yield of 0.06/(1 - 0.4), or 10%.
References in periodicals archive ?
The tax equivalent yield on average loans for the quarters ended June 30 and March 31, 2015 was 4.
6 percent would clearly be better off investing in tax-free municipal bonds, since the tax equivalent yield of 3.
94% tax equivalent yield at the highest income tax bracket (35% as of May).
If you are in the 36 percent tax bracket, your tax equivalent yield on a 6 percent municipal bond would be 9.
The site will include a tax equivalent yield calculator and offer investment strategies to consider in a changing tax environment.
The tax equivalent yield on the Company's investment portfolio in the fourth quarter of 2007 was 5.
The average tax equivalent yield increased 68 basis points to 5.
Also contributing to the improvement were increases in higher yielding securities balances, primarily due to highly-rated tax-exempt municipal securities at relatively high tax equivalent yields and a continuing improvement in the overall interest-earning asset mix.
00 (1) Includes securitized assets subject to repurchase (2) Includes municipal bonds at tax equivalent yields and cash equivalents WASHINGTON FEDERAL, INC.
00 (a) Includes securitized assets subject to repurchase (b) Includes municipal bonds at tax equivalent yields and cash equivalents WASHINGTON FEDERAL, INC.

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