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.
Determine the principal amount. For example, assume the principal is $10,000.
Determine the number of basis points changes. For example, assume the basis point change is 50 basis points.
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.
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
- Board of Governors of the Federal Reserve System. "Open Market Operations." Accessed July 30, 2020.
Since 1992 Matt McGew has provided content for on and offline businesses and publications. Previous work has appeared in the "Los Angeles Times," Travelocity and "GQ Magazine." McGew specializes in search engine optimization and has a Master of Arts in journalism from New York University.