What term describes the original amount invested in a stock or bond?

• A. Seed
• B. Basis
• C. Yield
• D. Price

Answer: (B)

Cost basis is the original amount invested in an asset, including any commissions or fees paid. It serves as the starting point for calculating capital gains or losses when you sell, since your profit or loss is the sale price minus your cost basis. For example, buying a stock at 50 with a 2 commission gives a basis of 52 per share; selling at 60 yields an 8 per share gain. In bonds, basis starts with the purchase price and may be adjusted for premium or discount amortization, which affects reported gains over time. The term price refers to the current market value, and yield describes the return rate on the investment. Seed isn’t used to describe the original investment amount.