Tax Equivalent Yield - Definition, Formula, How to Calculate Tax Equivalent Yield?
2.5 هزار بار بازدید -
5 سال پیش
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In this video on Tax
In this video on Tax Equivalent Yield Formula, here we discuss its formula, practical examples and uses.
𝐓𝐚𝐱 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 𝐘𝐢𝐞𝐥𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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The very first question is why you should use this formula? And the answer is this formula will help you to compare the return between tax-free and tax-free investments.
𝐔𝐬𝐞 𝐨𝐟 𝐓𝐚𝐱 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 𝐘𝐢𝐞𝐥𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Investors should use this formula to determine whether higher taxes on investment in taxed investments are advisable.
𝐓𝐚𝐱 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 𝐘𝐢𝐞𝐥𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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Mrs. Emma's new to the world of investment. She wants to find out if she should make tax-free or tax-free investments. She finds that taxed investments pay an average yield of 7%.
However, tax-free investment will pay an average of 6%. The prevailing tax rate is 30%. You must guide Ms.Emma to choose which investment would be more advantageous to her.
Tax Yield = 7%
Tax Rate = 30%
So, Using the formula of Tax Equivalent Yield Formula , we get –
Tax Equivalent Yield = Tax Free Yield / (1 – Tax Rate)
= 7% / (1- 40%)
= 0.07 / (1 - 0.40)
= 0.07 / 0.60 =0.1167 = 12%
You can find out more about the 𝐓𝐚𝐱 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 𝐘𝐢𝐞𝐥𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 here:- https://www.wallstreetmojo.com/tax-eq...
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𝐓𝐚𝐱 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 𝐘𝐢𝐞𝐥𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
--------------------------------------------------------
The very first question is why you should use this formula? And the answer is this formula will help you to compare the return between tax-free and tax-free investments.
𝐔𝐬𝐞 𝐨𝐟 𝐓𝐚𝐱 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 𝐘𝐢𝐞𝐥𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
----------------------------------------------------------------
Investors should use this formula to determine whether higher taxes on investment in taxed investments are advisable.
𝐓𝐚𝐱 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 𝐘𝐢𝐞𝐥𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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Mrs. Emma's new to the world of investment. She wants to find out if she should make tax-free or tax-free investments. She finds that taxed investments pay an average yield of 7%.
However, tax-free investment will pay an average of 6%. The prevailing tax rate is 30%. You must guide Ms.Emma to choose which investment would be more advantageous to her.
Tax Yield = 7%
Tax Rate = 30%
So, Using the formula of Tax Equivalent Yield Formula , we get –
Tax Equivalent Yield = Tax Free Yield / (1 – Tax Rate)
= 7% / (1- 40%)
= 0.07 / (1 - 0.40)
= 0.07 / 0.60 =0.1167 = 12%
You can find out more about the 𝐓𝐚𝐱 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 𝐘𝐢𝐞𝐥𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 here:- https://www.wallstreetmojo.com/tax-eq...
Connect with us!
Youtube ► @wallstreetmojo
LinkedIn ► LinkedIn: mycompany
Facebook ► Facebook: wallstreetmojo
Instagram ► https://www.instagram.com/wallstreetm...
Twitter ► Twitter: wallstreetmojo
5 سال پیش
در تاریخ 1398/05/13 منتشر شده
است.
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