The relation between the interest rate of a municipal bond and a comparable corporate bond is as follows:
rm = rc ( 1 - t )where
rm = interest rate of municipal bond rc = interest rate of comparable corporate bond t = tax rateFor example if:
rc = 10% t = 38%then
rm = .10 (1 - .38) = 6.2%A municipal bond that pays 6.2% is comparable to a corporate bond that pays 10% (assuming all else is equal)