The income one derives from a taxableinvestment that equals the yield of a tax-free investment with less income. 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 income is the extra income required from a corporate bond to equal the post-tax income of a municipal bond. See also: Municipals-over-bonds spread, After-tax basis.
All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional.