Taxable Equivalent Yield
Taxable Equivalent Yield (TEY) is the yield a taxable security would need to offer to produce the same after-tax return as a tax-exempt security, given an investor's marginal tax rate.
Example: If a municipal bond yields 3.0% tax-exempt and the investor's marginal federal tax rate is 24%, the TEY is approximately 3.0% / (1 - 0.24) = 3.95%, meaning a taxable security would need about a 3.95% yield to match the after-tax income at that tax rate.
💬 Comments