Definition
Municipal bonds (munis) are issued by states, cities, counties, or other local entities to fund public projects. Interest is typically exempt from federal taxes and often state taxes for residents. This tax advantage makes them attractive to investors in high tax brackets despite lower stated yields.
Formula
Tax-Equivalent Yield = Muni Yield / (1 - Tax Rate)
Example
A 3% municipal bond for someone in the 35% tax bracket has a tax-equivalent yield of 4.6% (3% / 0.65).
FAQ
What is Municipal Bond?
A debt security issued by state or local governments, often tax-exempt.
How do you calculate Municipal Bond?
A common formula for Municipal Bond is: Tax-Equivalent Yield = Muni Yield / (1 - Tax Rate)
Why is Municipal Bond important?
Municipal Bond helps investors evaluate fixed income and make more informed decisions.