1. What is Tax Equivalent Yield?

Tax Equivalent Yield (TEY) is a calculation that allows investors to compare the yield of a tax-free municipal bond with that of a taxable bond. It shows what yield you would need to earn on a taxable investment to match the after-tax return of a tax-free municipal bond.

2. How Does the Calculator Work?

The calculator uses the Tax Equivalent Yield formula:

Where:

• \( TEY \) — Tax Equivalent Yield (decimal)
• \( Yield \) — Municipal bond yield (decimal)
• \( Tax\ Rate \) — Marginal tax rate (decimal)

Explanation: The formula adjusts the tax-free municipal bond yield to show its equivalent taxable yield, accounting for your marginal tax bracket.

3. Importance of TEY Calculation

Details: TEY helps investors make informed decisions when comparing municipal bonds with taxable investments. It ensures fair comparison by accounting for tax advantages of municipal bonds.

4. Using the Calculator

Tips: Enter municipal bond yield and marginal tax rate as decimals (e.g., 0.05 for 5%). Ensure tax rate is between 0 and 0.99 (1% to 99%).

5. Frequently Asked Questions (FAQ)

Q1: Why calculate tax equivalent yield?
A: To compare tax-free municipal bonds with taxable investments on an equal basis, accounting for tax savings.

Q2: What is a good TEY?
A: A good TEY depends on your tax bracket and available taxable investments. Generally, higher TEY indicates better value for high-tax-bracket investors.

Q3: How do I find my marginal tax rate?
A: Check current federal and state tax brackets based on your taxable income. Add both rates for total marginal rate.

Q4: Are all municipal bonds tax-free?
A: Most are federally tax-free, but some may be subject to state taxes if purchased outside your state of residence.

Q5: Does TEY account for state taxes?
A: This calculator uses your total marginal tax rate. Include both federal and state taxes for accurate comparison.