“Taxable Yield” in the above illustration represents a hypothetical yield on a hypothetical bond, such as a corporate bond, whose interest payments are subject to federal income tax. “Tax-Free Yield” represents the hypothetical coupon rate on a hypothetical municipal bond whose interest payments are not subject to federal income tax (though it may be subject to Federal alternative minimum tax (AMT) as well as state and/or local taxes). “Equivalent Taxable Yield” represents the hypothetical yield on a taxable bond that would be required to equal the hypothetical yield for a hypothetical tax-free bond for an investor who is subject to a given federal income tax rate. All yields in these hypothetical examples are based on current federal income tax brackets, which are subject to change.
Tables are for illustrative purposes only and do not represent the performance of any specific investment. All investing involves risk, including the potential loss of principal, and there is no guarantee that a bond will be worth what you paid for it when you sell. Specific risks associated with investing in both taxable and tax-free bonds include interest rate risk (potential loss of value from a rise in interest rates), inflation risk (a decline in the purchasing power of a bond’s interest payments), liquidity risk (the possibility that you could have difficulty selling a bond), and default risk (the possibility that the issuer will default on payments or repayment of principal).