i would say 3.4% because if you used 3.5% and held to maturity you would end with a basis higher than PAR (maturity value) resulting in a "capital loss". "capital losses" are not allowed for this type of bond held to maturity.
but see this article which says take the original issue discount and divided by years to maturity. then every year add that amount to the basis. That means the basis increases by the same amount for each full year.
https://www.municipalbonds.com/tax-education/impact-taxation-zero-coupon-muni-returns/
