Basis point
 | This articleneeds additional citations forverification.(May 2010) |
| ‱ | |
|---|---|
per ten thousand sign | |
| InUnicode | U+2031‱PER TEN THOUSAND SIGN(‱) |
| Related | |
| See also | U+0025%PERCENT SIGN U+2030‰PER MILLE SIGN(per thousand) |
Abasis point(often abbreviated asbp,often pronounced as "bip" or "beep"[1]) is one hundredth of 1percentage point.Changes of interest rates are often stated in basis points. For example, if an existing interest rate of 10 percent is increased by 1 basis point, the new interest rate would be 10.01 percent.[2]
The related termpermyriadmeans one thousandth of 1 percentage point.
Definition
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- 1 basis point (bp) = 1‱, 0.1‰, 0.01%, 10−4,1/10,000,or 0.0001.
- 10 bp = 10‱, 1‰, 0.1%, 10−3,1/1,000,or 0.001.
- 100 bp = 100‱, 10‰, 1%, 10−2,1/100,or 0.01.
Basis points are used as a convenientunit of measurementin contexts where percentage differences of less than 1% are discussed. The most common example isinterest rates,where differences in interest rates of less than 1% per year are usually meaningful to talk about. For example, a difference of 0.10 percentage points is equivalent to a change of 10 basis points (e.g., a 4.67% rate increases by 10 basis points to 4.77%). In other words, an increase of 100 basis points means a rise by 1 percentage point.
Likepercentage points,basis points avoid the ambiguity between relative and absolute discussions aboutinterest ratesby dealing only with the absolute change in numeric value of a rate. For example,if a report says there has been a "1% increase" from a 10% interest rate, this could refer to an increase either from 10% to 10.1% (relative, 1% of 10%), or from 10% to 11% (absolute, 1% plus 10%). However, if the report says there has been a "100 basis point increase" from a 10% interest rate, then the interest rate of 10% has increased by 1.00% (the absolute change) to an 11% rate.
It is common practice in the financial industry to use basis points to denote a rate change in afinancial instrument,or the difference (spread) between two interest rates, including theyieldsoffixed-incomesecurities.
Since certainloansandbondsmay commonly be quoted in relation to some index or underlying security, they will often be quoted as a spread over (or under) the index. For example, a loan that bearsinterestof 0.50% per annum above theSecured Overnight Financing Rate(SOFR) is said to be 50 basis points over SOFR, which is commonly expressed as "S+50bps" or simply "S+50".
The term "basis point" has its origins in trading the "basis" or the spread between two interest rates. Since the basis is usually small, these are quoted multiplied up by 10,000, and hence a "full point" movement in the "basis" is a basis point. Contrast withpipsin FX forward markets.
Expense ratiosofinvestment fundsare often quoted in basis points.[3]
Permyriad
[edit]A related concept is one part per ten thousand,1/10,000.The same unit is also (rarely) called apermyriad,literally meaning "for (every)myriad(ten thousand) ".[4][5]If used interchangeably with basis point, the permyriad is potentially confusing because an increase of one basis point to a 10 basis point value is generally understood to mean an increase to 11 basis points; not an increase of one part in ten thousand, meaning an increase to 10.001 basis points. This is akin to the difference betweenpercentageandpercentage point.
Unicode
[edit]A permyriad is written withU+2031‱PER TEN THOUSAND SIGN(‱)[6]which looks like apercent sign%with three zeroes to the right of the slash. (It can be regarded as a stylized form of the four zeros in thedenominatorof "1/10,000",although it originates as a natural extension of thepercent%andpermille‰signs.)
Related units
[edit]- Percentage pointdifference of 1 part in 100
- Percentage(%) 1 part in 100
- Per mille(‰) 1 part in 1,000
- Per cent mille(pcm) 1 part in 100,000
- Parts per million(ppm) 1 part in 1,000,000
See also
[edit]References
[edit]- ^"Beep".Investopedia.
- ^Chad Langager."Basis Point (BPS) Definition & How It's Used".Investopedia.
- ^Constable, Simon (September 4, 2013)."What Is a Basis Point and Why Is It So Important?".Wall Street Journal.Dow Jones. Archived fromthe originalon 2016-10-09.Retrieved2017-04-22.
Investors also refer to basis points when discussing the cost of mutual funds and exchange-traded funds. Typically, fund expenses are expressed as an annual percentage of assets. For instance, the "Investor" share class of Vanguard Total Stock Market Index, the largest stock mutual fund, has expenses of 0.17%, or 17 basis points.
When people compare fund expenses, they measure the difference in basis points. A fund with expenses of 0.45% is said to be five basis points more expensive than one with a 0.40% ratio. - ^"myriad".merriam-webster.Retrieved9 April2018.
- ^"myriad".Dictionary.Retrieved9 April2018.
- ^"General Punctuation"(PDF).The Unicode Consortium.Retrieved17 Sep2011.
External links
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Media related toBasis pointat Wikimedia Commons
