What is required to determine the adjusted cost basis of a municipal bond purchased at a premium?

To determine the adjusted cost basis of a municipal bond purchased at a premium, the amortization of the premium is essential. When a bond is purchased at a premium, it means that the buyer pays more than the face value of the bond. Over the life of the bond, this premium must be amortized, which effectively reduces the bond's cost basis for tax purposes. This amortization occurs because the premium reduces the taxable income derived from the bond's interest payments, since it essentially represents a cost that is recouped over time.

For investors, understanding how to properly amortize the premium is crucial, as it affects how much capital gain or loss will be realized upon the sale or maturity of the bond. By correctly adjusting the basis through amortization, investors can ensure they are accurately reporting income and expenses related to the bond on their tax return. Thus, option A directly aligns with the responsibilities of an investor regarding the treatment of bonds purchased at a premium.