The portion of the fund's distributions that are federally tax-exempt, divided by one minus the assumed tax rate of 39.6% (e.g., 1-39.6%=60.4%). This gives the equivalent taxable yield needed to net the same return.

The pre-tax yield required from a taxable bond in order to equal the tax-free yield of a municipal bond.

The yield before taxes that a taxable mutual fund or bond would have to pay to be equal to the tax-free yield of a mutual fund or municipal bond. The tax-equivalent yield depends on an investor's tax bracket. The higher the tax bracket, the more attractive the tax-free income becomes. For example, a tax-free yield of 7% is equivalent to a taxable yield of 9.7% for an investor in the 28% federal income tax bracket, and to a taxable yield of 10.9% for an investor in the 36% tax bracket.