The equation to determine the equivalent fully-taxable yield, ignoring state and local taxes, is:

Question

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The equation to determine the equivalent fully-taxable yield is tax exempt yield divided by (1 - marginal federal tax rate). This is because the tax-exempt yield is not subject to federal income taxes, so to compare it to a taxable yield, we need to adjust for the tax savings. The marginal tax rate is used because it is the rate at which the last dollar of income is taxed, and is therefore the highest rate applied to any portion of the income.

The Equation to Determine the Equivalent Fully-Taxable Yield, Ignoring State