Refinance your mortgage
It takes less than 5 minutes to get a quote. And it's FREE!
Let's get you started!
The Municipal Bond Tax Equivalent Yield Calculator has been designed to help you estimate the additional usable profit that municipal bonds generate based on the assumption that it won't be taxed by the federal government. To use this tool you will need to enter the bond's yield amount, your total estimated taxable income, your federal tax filing status, and your state income tax rate. After entering this information click on "Calculate." This will create a Tax Equivalent Yield bar graph that compares fully taxable, federally exempt, and state and federal exempt investment yields.
If you are interested in investing in the securities market then you may want to consider investing in municipal bonds. Municipal bonds, also referred to as munis, are usually issued by governmental organizations like local governments, states, cities, and even school districts.
These organizations issue municipal bonds in order to raise funds needed for a specific capital development project. In exchange for cash, the entity agrees to repay the bond holder within a specific period of time with interest. Most municipal bonds mature between 20 and 40 years; however, some municipal bonds have shorter maturity rates.
The highway will cost $2 million. If they don’t already have the cash available to finance the project, the local Government needs to borrow the money from somewhere.
They can go to the bank, but the interest rate is high and doesn’t offer value for taxpayer money. So instead they decide to make bonds available for members of the public to buy – 200 bonds worth $10,000 each.
These bonds have a yield of 5% and mature after 20 years – this means that at the moment of maturity, the local government will repay the bond in full, plus any outstanding interest.
Here's how to get started:
This calculator is most useful if you:
Among the advantages of investing in a municipal bond is that the interest earned on a municipal bond investment is usually exempt from federal taxation. This makes municipal bonds a possible tax shelter option for your income. Additionally, you can generally expect a better rate of interest than a savings account, and although bonds are higher risk, the nature of the organizations that offer municipal bonds (local governments, schools, etc) provide a certain level of assurance.
The disadvantage with most bonds is not having access to the money as and when you need it, however many municipal bonds offer call provisions, allowing you to recall your funds – at the cost of losing interest payments. As implied above, the risk of default is lower than with corporate bonds, although municipal bonds are more susceptible to interest rate fluctuations – particularly those with long maturity.