# Tax-Equivalent Yield

*Taxes — Finicade finance glossary*

Tax-equivalent yield converts a tax-free yield into the taxable yield that leaves you equally well off, so munis and corporates compare honestly.

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)`

**Also known as:** taxable equivalent yield, TEY

**Related terms:** [Municipal Bond](https://finicade.com/glossary/municipal-bond), [Yield](https://finicade.com/glossary/yield), [Marginal Tax Rate](https://finicade.com/glossary/marginal-tax-rate), [Corporate Bond](https://finicade.com/glossary/corporate-bond)

Source: https://finicade.com/glossary/tax-equivalent-yield