HOW YOUR TAX BRACKET AFFECTS YOUR TAXABLE EQUIVALENT YIELD

If you plug different tax brackets into the formulas for taxable equivalent yield, you will see that the higher your tax bracket, the higher the taxable equivalent yields will be. Therefore, the higher your tax bracket, the more you will profit from municipal bonds. This is why municipal bonds are very popular among high-income investors. If you use the 38.6 percent tax bracket instead of the 27 percent rate to find the taxable equivalent yield on a 6 percent municipal bond, your taxable equivalent yield would be 9.77 percent. At a bracket of only 15 percent, your taxable equivalent yield would be only 7.06 percent.

Now, some parting words on using taxable equivalent yields.