Tax-Equivalent Yield
Also called: taxable equivalent yield, TEY
Tax-equivalent yield converts a tax-free yield into the taxable yield that would leave you equally well off, so municipal and corporate bonds can be compared honestly. At a 35% marginal rate, a 3.5% muni is worth a 5.4% taxable bond. Because the answer depends on your bracket, the same bond is a bargain for one investor and poor value for another.
Formula
Tax-equivalent yield = Tax-free yield ÷ (1 − Marginal tax rate)