Tax-Equivalent Yield

外汇网2021-06-19 20:53:47 58

The ptax yield that a taxable bond needs to possess for its yield to be equal to that of a tax-free municipal bond. This calculation can be used to fairly compare the yield of a tax-free bond to that of a taxable bond in order to see which bond has a higher applicable yield.

Also known as "after-tax yield."

|||For example, if a tax-free bond has a yield of 20% and the tax rate is 10%, a taxable bond would need a ptax yield of 22.2% (20% / 90%) in order to be considered an equivalent investment. Therefore, all bonds with the same risk but with a ptax yield of less than 22.2% should be considered inferior investments compared to the 20% municipal bond.

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