The Equivalent Taxable Yield (ETY) Calculator is designed to help investors understand what their tax-exempt income would be equivalent to if it were taxed at the normal rate. This calculation is vital for comparing different investment options on a level playing field, ensuring that decisions are made with a clear understanding of potential returns after taxes.
Formula of Equivalent Taxable Yield Calculator
To calculate the Equivalent Taxable Yield (ETY) for a tax-exempt investment, use the following formula:
Where:
- ETY is the Equivalent Taxable Yield
- TEY is the Tax-Exempt Yield of the investment
- TR is the Tax Rate
Steps to use this formula:
- Determine the Tax-Exempt Yield (TEY) of the investment. This is the yield you receive from the investment without considering any taxes.
- Find out your Tax Rate (TR). This is the percentage of your income that you pay in taxes.
- Plug these values into the formula to calculate the Equivalent Taxable Yield (ETY).
Table of General Terms and Conversions
Below is a table of general terms that are commonly search in relation to tax-exempt yields and their equivalent taxable yields. This table serves as a quick reference to understand and convert these yields without needing to perform calculations each time.
| Term | Definition | Example |
|---|---|---|
| TEY | Tax-Exempt Yield | The percentage yield from a tax-exempt bond. |
| TR | Tax Rate | The tax percentage applied to your income. |
| ETY | Equivalent Taxable Yield | The yield of a tax-exempt bond as if it were taxed. |
Example of Equivalent Taxable Yield Calculator
Consider a municipal bond with a tax-exempt yield (TEY) of 3%. If your tax rate (TR) is 30%, the Equivalent Taxable Yield (ETY) would be calculate as follows:
ETY = 3% / (1 – 30%) = 4.29%
This means the tax-exempt bond’s yield is equivalent to a taxable bond yielding 4.29%.
Most Common FAQs
A1: Understanding the ETY allows investors to make informed comparisons between tax-exempt and taxable investment options, ensuring better financial decisions based on potential after-tax returns.
A2: Yes, the ETY formula can be apply for any tax rate, making it a versatile tool for financial analysis across different tax scenarios.