A single basis point is 1/100 of a percentage point, or .01 percent. In finance, the basis point is commonly used to express percentages of less than 1 percent. Additionally, many financial institutions use the basis point concept to quantify fees associated with a financial transaction. You can calculate the basis point charge with some basic information about the financial transaction.
1. Determine the principal amount. For example, assume the principal is $10,000.
2. Determine the number of basis points changes. For example, assume the basis point change is 50 basis points.
3. Multiple the number of basis points by .01. Continuing the same example from the previous steps, 50 x .01 = 0.5 percent. This figure represents the basis point change expressed as a percentage.
4. Multiple the basis point percentage by the principal amount. Continuing the same example, 0.5 x $10,000 = $5000. This figure represents the basis point change expressed as a dollar amount.
- "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
- Math is Fun: Percentage Points
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