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I was looking at Vanguard Short-Term (VWSTX) and Ltd-Term (VMLTX) Tax-Exempt Bond funds to see how their tax-free income compares with that from a typical one-yr CD after, say, 30% tax. While the respective yields are given as 2.31% and 3.18%, the one yr. returns after tax (as of 31 March 2002) are 3.35% and 3.46%. The figures after sale of fund shares are even better: 3.48% and 3.79% (presumably because the price of each fund a year ago was higher than on 31 March?). Even without this, the returns are much better than the quoted yields, and look quite attractive.

I am not sure if the annual return is just the average yield over the year or if it includes some thing else. If the current interest rate remains the same for the next twelve months, can we expect the one year return next March to be the same as the quoted yield, assuming the fund prices remain more or less unchanged?

Comments, please.



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