What are basis points used for?
What Are Basis Points (BPS)? Basis points (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
What is a 50 basis point increase in interest rates?
A bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points, or interest rates that have risen 1% are said to have increased by 100 basis points. If the Federal Reserve Board raises the target interest rate by 25 basis points, it means that rates have risen by 0.25% percentage points.
What is a 20% move in basis points?
The use of basis points, in this case, makes the meaning obvious: If the instrument is priced at a 10% rate of interest and experiences a 100 bp move up, it is now 11%. The 20% result would occur if there were instead a move of 1,000 bps.
What is a basis point (BP)?
The basis point is commonly used for calculating changes in interest rates, equity indices, and the yield of a fixed-income security. It is common for bonds and loans to be quoted in basis point terms. For example, it could be said that the interest rate offered by your bank is 50 basis points higher than the London Interbank Offered Rate (LIBOR).