An investor in the 32% federal tax bracket is comparing a municipal bond yielding 4% with a corporate bond. The taxable-equivalent yield of the muni is approximately:

Explanation

Taxable-equivalent yield = tax-free yield / (1 - tax rate) = 4% / (1 - 0.32) = 4% / 0.68 = about 5.88%. This means a taxable corporate bond would need to yield roughly 5.88% to match the muni's after-tax return, so the muni is more attractive unless the corporate bond yields more than 5.88%.