For Yield Equivalence we have terms and definitions in 3 topics. The topics are Finance, Frauds and Scams and Investing.

Yield Equivalence (Finance)

The interest rate at which a tax-exempt bond and a taxable security of similar quality give the investor the same rate of return.

Yield Equivalence (Frauds and Scams)

The interest rate at which a taxable security and a tax-exempt bond have the same rate of return. To calculate the tax equivalent yield of a tax-exempt bond for investors in different tax brackets, the tax-exempt yield is divided by the reciprocal of the tax bracket (e.g., 100 less 28%). Thus, a person in the 28% tax bracket who wants to know the tax equivalent yield of a 8% tax free municipal bond would divide 8% by 72% to get 11%--the yield a taxable security would have to return to be equivalent, after taxes, to an 8% municipal bond. To convert a taxable yield to a tax-exempt yield, the formula is reversed--the tax-exempt yield is equal to the taxable yield multiplied by the reciprocal of the tax bracket.

Yield Equivalence (Investing)

The interest rate at which a taxable security and a tax-exempt bond have the same rate of return. To calculate the tax equivalent yield of a tax-exempt bond for investors in different tax brackets, the tax-exempt yield is divided by the reciprocal of the tax bracket (e.g., 100 less 28%). Thus, a person in the 28% tax bracket who wants to know the tax equivalent yield of a 8% tax free municipal bond would divide 8% by 72% to get 11%--the yield a taxable security would have to return to be equivalent, after taxes, to an 8% municipal bond. To convert a taxable yield to a tax-exempt yield, the formula is reversed--the tax-exempt yield is equal to the taxable yield multiplied by the reciprocal of the tax bracket.

See Also: Equivalent Taxable Yield

Similar

Browse words that start with:

• Yi
• Yie
• Yiel
• Yield

Browse All Terms by First Letter

Term Search