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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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%.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Interest income increased by $44.2 million, driven by increases in the average balances of loans and investment securities outstanding as well as increases in tax-equivalent yields on interest earning assets.
Even though those investors can't benefit from the higher tax-equivalent yields of tax-exempt bonds -- because they're not U.S.
So he said he shows a chart of tax-equivalent yields, saying "here you can find your tax bracket based upon your current taxable income, whether single or married."
Net interest margin for 2015 was 3.31%, compared to 3.52% for 2014, which was negatively affected by lower yields on loans held for investment, partially offset by higher average balances of loans held for investment and investment securities, higher tax-equivalent yields on securities, and higher accretion, as noted above.
Lower asset yields, year over year, were partially offset by higher average balances of loans, higher accretion of acquired loan discounts, and higher average balances of and tax-equivalent yields on the company's investment portfolio in the 2015 period.