Tax-equivalent yield calculator
Tax-equivalent yield = muni yield ÷ (1 − tax rate). Going the other way, a taxable yield × (1 − rate) is its muni equivalent.
Tax-equivalent yield of the muni: muni ÷ (1 − rate)
5.88%
A taxable bond must pay this much to match a 4.00% muni.
Muni-equivalent of the corporate: corporate × (1 − rate)
4.08%
A muni paying more than this beats the 6.00% corporate after tax.
The trap answer: muni × (1 + rate) = 5.28%
Wrong. Converting a muni yield to a taxable one divides by (1 − rate); it never multiplies by (1 + rate).
Want graded practice? Try the free drills.
Sources
For study only. Not investment, tax or legal advice.