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Now that AAA-rated municipal bonds are yielding as much as 5.25% with a 16 year maturity, Montriese King (800-678-7862), an investment executive with PaineWebber, advises investors in high tax brackets to give them a look. First, it pays to know how to figure out on equivalent taxable yield for munis so you ran compare them with Treasuries and other taxable fixed-income investments. The calculation is simple: you merely divide a municipal bond’s tax-free yield by one, minus your federal tax rate. For example, if you’re in the 36% bracket and you’ve found a muni yielding 4%, you divide 4 by 0.64, resulting in 6.25%. That tells you that a tax-free muni is providing you with the same after-tax interest income as a taxable Treasure yielding 6.25%. King says you ran save on state taxes as well, but that varies. Values right now are found in munis with a maturity of 10 16 years, yielding 4.9% 5.25%. Stick to bonds carrying a AAA rating, advises King, because most are insured and they’re the safest investment out on the muni market. Income may be subject to state and local taxes and alternative minimum tax. Yields will fluctuate if sold prior to maturity, and will vary according to interest rates, market conditions and the credit quality of the issuer.
As of 2/21/97; EPS = earnings per share Source: Zacks Investment Research, Chicago