How do you calculate basis points?


Quick Answer

A basis point is 1/100 of a percentage point, which means that multiplying the percentage by 100 will give the number of basis points, according to Duke University. Because a percentage point is already a number out of 100, a basis point is the part per 10,000, which is 100 multiplied by 100.

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Full Answer

Basis points are widely used in business applications, such as determining changes in interest rates or changes in bonds and loan rates, notes Investopedia. Speaking in terms of basis points helps to identify numbers that are smaller than one percent as it would be difficult to continually talk about numbers as fractions of percentages, which are already fractions. The basis point is the exact same measurement as a permyriad, which literally translated means part per myriad, or part per 10,000.

To calculate the number of basis points, simply multiply the percentage by 100. To easily multiply something by 100, simply take the original number and add two zeros after it. For example, 40 percent would be 4,000 basis points. Additionally, if something is 10 percent, but during a year it has raised to 10.25 percent, then it is customary to say that it went up 25 basis points. If something raises or lowers 1 whole percent, it goes up or down 100 basis points.

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