Yield Calculations

What this video covers

• Why taxable equivalent yield (TEY) is muni yield divided by (1 minus marginal tax rate), and why multiplying is the classic exam trap
• How to run the TEY formula backward to find the breakeven tax bracket between a muni and a taxable bond
• Why higher tax brackets make municipal bonds more attractive, not less
• Why current yield ignores any gain or loss at maturity, and which yield measure actually captures it
• The yield seesaw at par (coupon = current yield (CY) = yield to maturity (YTM)), at a discount (coupon less than CY less than YTM), and at a premium (YTC less than YTM less than CY less than coupon)
• Why yield to call (YTC) is the most relevant yield to quote on a premium callable muni, and why it is always the lowest
• What a basis point is, and why longer-maturity and lower-coupon bonds have a higher dollar value of a basis point (DV01)