tax-equivalent yield

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 ?
4 million for 2017 and the average tax-equivalent yield of interest-earning assets from 3.
Interest income decreased USD145,000 when comparing the periods as the average tax-equivalent yield on interest-earning assets decreased from 4.
3 percent from the prior-year quarter as the average tax-equivalent yield on earning assets came in at 6.
Recognizing that the spread required to induce the investor to hold both types of bonds is increased by the risk premium, we can define it as the difference between the yield on the municipal bond and the expected tax-equivalent yield on the corporate bond.
Treatment of a portion of the dividends as qualified dividend income or long-term capital gains has the effect of providing individual preferred stockholders with a higher ordinary income tax-equivalent yield.
3 million for 2017, and an increase in the average tax-equivalent yield, from 4.
29% versus 3% for a 30-year Treasury bond, but the tax-equivalent yield for investors in the top 39.
If state and local income taxes were included in the calculation, the tax-equivalent yield would be even greater for many investors.
For instance, he explains that a municipal bond paying 3% interest pays a tax-equivalent yield of 4.
The tax-equivalent yield on investments decreased 172 basis points compared to the second fiscal quarter in 2009.
Treatment of a portion of the dividends as long-term capital gains has the effect of providing individual preferred stockholders with a higher ordinary income tax-equivalent yield.
The tax-equivalent yield on investments decreased 48 basis points compared to the same quarter in 2008.