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%.