How do I compare interest rates on tax free vs taxable bonds?

V

Vince

Is there a function on Excel--Vista--where I can compare the interest rates
(coupon rate) on tax free municipal bonds vs taxable corporate bonds?

Thanks
 
D

Duke Carey

One of two ways:

1) simply divide the tax-exempt rate by (1-effective tax rate), to make it
taxable equivalent, or
2) multiply the the taxable rate by (1-effective tax rate), to make it
after-tax

Effective tax rate means the total of your marginal Federal, state, and
local income tax rates. Keep in mind that some tax-exempt bonds are only
Federally exempt, others are Federally AND State exempt, and a few are triple
tax-exempt - Fed/State/local. Typically, the more 'exempt' a bond is, the
lower its coupon
 

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