Yield Equivalence

Yield Equivalence
The interest rate on a taxable security that would render a return equivalent to that of a tax-exempt security, and vice versa, calculated as follows:

Yield Equivalence

In order to calculate yield equivalence, divide the tax-exempt yield by 1 minus the investor's tax rate. For example, say you were considering a 6% tax-exempt municipal bond, but you would like to calculate what the interest rate on a taxable investment would have to be to give you the same return. If you have a 20% rate of taxation, you would need a return of 7.5% on your taxable investment to match the 6% return on the tax-exempt investment (6%/(1-0.20)=7.5%).

Conversely, if you know your taxable rate of return, you can calculate the equivalent rate on a tax-exempt investment. This is done by multiplying the taxable rate by 1 minus your tax rate. If your taxable return is 6% and your rate of taxation is 20%, you need a 4.8% return on a tax-exempt security to match the after-tax return on a taxable security (6%*(1-0.20)=4.8%).


Investment dictionary. . 2012.

Игры ⚽ Нужна курсовая?

Look at other dictionaries:

  • yield equivalence — The interest rate at which a tax exempt bond and a taxable security of similar quality give the investor the same rate of return. Bloomberg Financial Dictionary * * * yield equivalence ˌyield eˈquivalence noun [uncountable] FINANCE when a …   Financial and business terms

  • Equivalence of categories — In category theory, an abstract branch of mathematics, an equivalence of categories is a relation between two categories that establishes that these categories are essentially the same . There are numerous examples of categorical equivalences… …   Wikipedia

  • equivalence principle — Physics. (in relativity) the principle that, in any small region of space time, the effects of a gravitational field are indistinguishable from those of an appropriate acceleration of the frame of reference. Also called Einstein s equivalency… …   Universalium

  • Mass–energy equivalence — E=MC2 redirects here. For other uses, see E=MC2 (disambiguation). 4 meter tall sculpture of Einstein s 1905 E = mc2 formula at the 2006 Walk of Ideas, Berlin, Germany In physics, mass–energy equivalence is the concept that the …   Wikipedia

  • Ricardian equivalence — Ricardian equivalence, (also known as the Barro Ricardo equivalence proposition) is an economic theory which suggests that it does not matter whether a government finances its spending with debt or tax increase, total level of demand in an… …   Wikipedia

  • Braid theory — The braid is associated with a planar graph. The 24 elements of a permutatio …   Wikipedia

  • Равенство в доходности — процентная ставка, при которой доходность не облагаемой налогом ценной бумаги равна доходности другой облагаемой налогом ценной бумаги. По английски: Yield equivalence См. также: Доходность ценных бумаг Финансовый словарь Финам …   Финансовый словарь

  • доход, эквивалентный налогу — Доход до вычета налога, который должен был бы выплачиваться с облагаемой налогом облигации, чтобы сравняться с не облагаемыми налогом муниципальными облигациями в рамках выбранного налогоплательщиком статуса. Чтобы рассчитать эквивалентный налогу …   Финансово-инвестиционный толковый словарь

  • эквивалентный доход, облагаемый налогом — Сравнение облагаемого налогом дохода по корпоративным облигациям со свободным от налогообложения доходом по муниципальным облигациям. В зависимости от класса налогообложения доход инвестора после уплаты налогов может быть больше от муниципальных… …   Финансово-инвестиционный толковый словарь

  • Mathematics of Sudoku — The class of Sudoku puzzles consists of a partially completed row column grid of cells partitioned into N regions each of size N cells, to be filled in using a prescribed set of N distinct symbols (typically the numbers {1, ..., N}), so that each …   Wikipedia

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”