How to Calculate Tax-Equivalent Yield
Compare taxable vs tax-exempt bond yields adjusted for your federal tax bracket.
The Formula
TEY = municipalYield / (1 - taxRate)The tax-equivalent yield formula uses the mathematical relationship: TEY = municipalYield / (1 - taxRate). Each variable in the formula represents a measurable quantity that affects the final result.
Step-by-Step Method
- 1Identify all input values needed for the tax-equivalent yield calculation.
- 2Substitute your known values into the formula: TEY = municipalYield / (1 - taxRate).
- 3Perform the arithmetic operations in the correct order (PEMDAS/BODMAS).
- 4Check that your result has the correct units and is within a reasonable range.
- 5Verify using the interactive Tax-Equivalent Yield Calculator to confirm your answer.
Related Topics
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Use the Interactive Calculator
Skip the manual math — get instant results with our free Tax-Equivalent Yield calculator.