PPT Slide
At year 3, the accrued value is $797.20, so the call is a 1.05($797.20) = $837.06.
The call premium is $837.06 - $797.20 = $39.86, and like the accrued interest, it is taxable income.
What is the after-tax return to a T = 28% investor if the zeros were called after three years with a 5% call premium?