The cost basis of any investment is the amount of money you initially invested. Certificates of deposit, or CDs, are investments whose interest compounds at a regular time interval, such as monthly or quarterly. CDs usually require you to leave your money invested for a certain amount of time to take advantage of the highest interest rate available. If you have a CD that has been invested for some time and you need to determine what the cost basis was, you will need to know the CD's annual interest rate and how many times it has compounded each year. From there it is a simple matter of plugging numbers into an equation.
This the equation to calculate the CD's cost basis:
A = B(1+r/n)^nt
A = present value of the CD B = basis cost of the CD r = annual interest rate n = number of times interest is compounded yearly t = how many years the interest has been compounding ^ = symbol that means "to the power of"
Solve the equation for B, or basis, since that is what you are interested in calculating.
B = A/(1+r/n)^nt
Analyze your CD to determine its present value (A), how many years the interest has been compounding (t), the number of times per year the interest is compounded (n) and the annual interest rate (r).
A = $6,244.66 t = 2 n = 12 r = 0.02 (2 percent)
Plug the number into the equation to calculate the CD's cost basis.
B = $6,244.66/(1+0.02/12)^12(2) = $6,000
The cost basis of your CD was $6,000.
Timothy Banas has a master's degree in biophysics and was a high school science teacher in Chicago for seven years. He has since been working as a trading systems analyst, standardized test item developer, and freelance writer. As a freelancer, he has written articles on everything from personal finances to computer technology.