Mike,
This is now what I think but I am not confident that I have it right. You have to calculate the rate based upon the original issue of the bond and the price you paid for the bond. That gives you two rates. You then select the lower rate (which maximizes your tax). You then compute the interest you got from the bond.
The way I see it, the amount of interest you get every year increases because of compounding. The link you referenced said implied that you can assume that the bond accrued the same amount of interest every year. That does not seem right to me. However, it does simply the calculations a lot and it would make sense before the days of computers. So I can believe it.
Please comment.
