Understanding Fully Taxable Equivalent Yield
The fully taxable equivalent yield calculation is a useful tool for investors, especially those in high tax brackets. The calculation helps an investor to decide whether to select a taxable or tax-free investment. This is crucial as the tax-free advantage that municipal bonds offer will be hard to match.
Fully taxable equivalent yield is the yield on a taxable bond that an investor would have to earn to match the return on a comparable tax-free municipal bond. However, it is not the end of the story, and some additional tax considerations can come into play when making such a comparison.
