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Finance - What Is A Basis Point?

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dkmathstats
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Hi there. This is a quick finance post explaining what is a basis point. Basis points in finance are used to describe changes in percentage changes in interest rates, bond yields and other financial products. You might hear about them in many finance news shows and videos.

 

Review Of Percents

Before getting into basis points, let's quickly review percents. A percent represents a portion for each 100. Three percent of 500 means take 3 for each 100. This means I would have 3 x 5 = 15 for 3% of 500.

In fraction form one percent is 1/100 or one-hundredth. In decimal form 1% would be 0.01.

Twelve percent of 1282 USD would be calculated (with a calculator) as 0.12 x 1282 = 153.84 USD.

 

Basis Points

One basis point is 0.01%. In decimal form this is 0.0001 or one ten-thousandth.

I suppose instead of saying zero point one seven percent (0.17%) it would be easier to say that interest rates have gone up by 17 basis points.

Ten basis points is the same as 0.1% (or 0.001) and one hundred basis points is equal to 1% (or 0.01). In general, multiply the number of basis points by 0.0001 for the decimal form.

Reference: https://www.investopedia.com/ask/answers/what-basis-point-bps/

Thank you for reading.

 

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