Fully Taxable Equivalent Yield

Definition of 'Fully Taxable Equivalent Yield'


The yield on a municipal bond, when the effect of reduced taxes are taken into account. The fully taxable equivalent yield shows what yield a fully taxable bond would have to give, in order to be equivalent to a tax free municipal bond. The yield is calculated as:

Yield on a Municipal Bond
1 - Tax Rate

Investopedia explains 'Fully Taxable Equivalent Yield'


Investors use the fully taxable equivalent yield to determine whether they will get the same value from a municipal bond, as they would from a taxable bond. Yields on municipal bonds are generally lower than taxable bonds, so the tax implications of having the municipal bond, must outweigh the gap between the two bond types.



comments powered by Disqus
Hot Definitions
  1. Gross Debt Service Ratio - GDS

    A debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment about whether a potential borrower is already in too much debt. Receiving a ratio of less than 30% means that the potential borrower has an acceptable level of debt.
  2. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  3. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  5. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  6. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
Trading Center