Can a zero coupon bond sell at a premium, what is a 'zero-coupon bond'
The bond interest income is taxed at the federal level and possibly at the state level. The effective interest expense or interest income is calculated as the market trading price of the premium bond multiplied by the prevailing market interest rate. The price of a bond is equal to the present value of all its future interest payments and the repayment of par value at maturity.
However, valuing future payments is not very simple.