tax-equivalent yield

(redirected from Tax Equivalent Yields)

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 ?
It provides federally tax-free and attractive tax equivalent yields for clients who need "greater tax efficiency in their portfolios," she says, The bond's yield of 1.
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.
2) Tax equivalent yields reflect the yields which would be required of a taxable investment based on the maximum marginal federal income tax rate of 38.

Full browser ?