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.

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 ?
Translated, this means that your taxable-equivalent yield (TEY) equals the tax-free yield (TFY) divided by your tax rate (YTR) subtracted from 1.
We have been able to maintain our net interest margin by choosing our assets selectively with an eye to maintaining taxable-equivalent yield, and strict adherence to the 'marginal-cost-of-funds approach' to managing our funding.
05% Taxable-equivalent yield on interest-earning assets 5.
Their attractive taxable-equivalent yields and historical returns add to their appeal.