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Taxable Equivalent Yield

   Also found in: Acronyms 0.01 sec.
Taxable equivalent yield
The return from a higher-paying but taxable investment that would equal the return from a tax-free investment. This depends on the investor's tax bracket.

Taxable 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 paying 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 taxable equivalent yield is the extra yield required on a corporate bond to equal the yield of a municipal bond. See also: Municipals-over-bonds spread, After-tax basis.


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Therefore, when investing in municipals, consider the Taxable Equivalent Yield (TEY).
1% tax bracket, the taxable equivalent yield would be approximately 12.
62% taxable equivalent yield based on Tyrone's 28% tax bracket.
 
 
 
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