QandAs: Finance

What is a Basis Point?

Answer:
Most often used in the financial sector, a

basis point is a unit of measurement equal to 1/100th of one percent. It is used to refer to percentage changes for such items as interest rates, equity indexes, and bond yields. Basis points are also known as “beeps.”

A one percent change is equal to 100 basis points. For example, interest rates which rise by 1% have increased by 100 basis points. A bond yield which increases from 5.25% to 5.45% would be equal to an increase of 20 basis points.

If you want to convert basis points into percentage form, you can take the amount of basis points and multiply by 0.0001. This calculation provides you with the percent in decimal form. If you want to figure out the number of basis points a percent represents – simply reverse this calculation and divide the percent by 0.0001.