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How to Calculate Your Federal Taxable Equivalent Yield

If you want to figure your taxable equivalent yield when only federal taxes are involved, use this formula:

Formula for Taxable Equivalent Yield for Federal Taxes

Here is how it works. Imagine you pay federal taxes at the 28 percent marginal rate. Now suppose that you are considering buying a municipal bond that earns 6 percent interest. To calculate how much you would need to earn on a taxable bond to equal your 6 percent after-tax rate, enter the numbers:

Example

You would have to earn 8.33 percent on a taxable bond to equal your 6 percent municipal bond.

This article provided by The Educated Investor and powered by CalcXML.
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