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Taxable Equivalent Yield Calculator

Formula

To calculate the Taxable Equivalent Yield (TEY):

$TEY = \frac{TY}{1 - TR}$

Where:

$TEY$ is the Taxable Equivalent Yield
$TY$ is the tax-free yield
$TR$ is the tax rate

What is a Taxable Equivalent Yield?

Taxable Equivalent Yield (TEY) is a calculation that allows investors to compare the yield on a tax-free bond to that of a taxable bond. It is used to determine the minimum yield a taxable bond must have to equal the yield of a tax-free bond. This is particularly useful for investors in high tax brackets who may benefit more from tax-free bonds.

Example Calculation

Let's assume the following values:

Tax-Free Yield $TY$ = 5%
Tax Rate $TR$ = 30% (or 0.30)

Step 1: Use the TEY calculation formula:

$TEY = \frac{5}{1 - 0.30} = \frac{5}{0.70} \approx 7.14$

The Taxable Equivalent Yield is approximately 7.14%.