taxable equivalent yield business definition

The pretax yield that provides the same return as a specified aftertax yield. Taxable equivalent yield is calculated by dividing tax-free yield by the difference obtained from subtracting the applicable tax rate from 1. For example, for an investor who pays taxes at a rate of 40%, an aftertax yield of 6% has a taxable equivalent yield of ^0.06/_{(1 - 0.4)} , or 10%.