Compare a tax-free municipal bond yield with taxable bonds.
Please do not make financial decisions based on these results.
What is the Tax Equivalent Yield Calculator?
Compare a tax-free municipal bond yield with taxable bonds. To use the Tax Equivalent Yield Calculator, enter municipal bond yield, marginal tax rate, state tax saved; it returns tax equivalent yield, and shows them instantly as you type.
Pricing bonds and testing credit
Price a bond with the Bond Price Calculator, solve for yield with the Bond YTM Calculator and measure rate risk with convexity and duration. If the bond is callable, compare yield to maturity with the yield to call.
On the credit side, combine Debt to Equity Calculator, interest coverage and the Altman Z-score. Together they show leverage, ability to pay and the odds of distress.
- Yields. Current yield, YTM, yield to call and bond-equivalent yield answer different questions.
- Coverage. DSCR, times interest earned and cash flow to debt show repayment capacity.
- Loss. LGD and credit spread translate risk into expected loss and extra yield.
How to use the Tax Equivalent Yield Calculator
- Fill in the fields. You will need Municipal bond yield (%), Marginal tax rate (%), State tax saved (%). Take the price, coupon and maturity from the bond’s listing. Fields marked optional can stay at zero.
- Read the result. The highlighted box gives the Tax equivalent yield. Tables and charts break it down further.
- Test other scenarios. Results update as you type. Change one value at a time to see what drives the answer, and press Reset to go back to the defaults.
Formula and how it works
Example with real numbers
Here is the Tax Equivalent Yield Calculator using the default values shown in the calculator above:
Inputs
| Municipal bond yield (%) | 3.6 |
|---|---|
| Marginal tax rate (%) | 32 |
| State tax saved (%) | 0 |
Results
| Tax equivalent yield | 5.29% |
|---|
With these inputs the calculator returns Tax equivalent yield: 5.29%. Change any value in the calculator to see how the result moves.
What if you change one input?
Sensitivity check: raising Municipal bond yield (%) from 3.6 to 4.32 (about 20% higher) and leaving everything else as in the example above changes the results like this:
| Result | Example | After the change | Change |
|---|---|---|---|
| Tax equivalent yield | 5.29% | 6.35% | +20% |
The input that moves the result most is the one to check twice. Change it in the calculator above to test your own case.
Method and limits. This calculator applies the formula in the section above to your inputs, in your browser; nothing you enter is stored on our servers. The result is only as accurate as the numbers you enter and the formula shown above. It is for information, not financial, tax or legal advice.
Frequently asked questions
When do munis beat taxable bonds?
When their tax-equivalent yield exceeds the taxable yield you could earn.
What interest coverage is safe?
Above about 3 times is comfortable; below 1.5 times signals stress.
How are bond prices calculated?
The price is the present value of every coupon plus the face value, discounted at the market yield.
Are the results guaranteed?
No. Results depend entirely on the numbers you enter and the formulas shown on this page. Please do not make financial decisions based on them alone; confirm important figures with a licensed professional.
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