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Basis Points!? January 18, 2008

Posted by madhavi mullagiri in Uncategorized.
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Have heard this term so many times, and decided to know it today 🙂 I am glad I did, because it is so easy a concept, and according to me sounds very powerful and scholarly (when you mention it) 😀

So when a change in a parameter we measure is from 5% to 6%, it would typically be a 20% increase in the normal sense. But using basis points, all arithmetic can be avoided to conveniently say 100 basis point = 1% percentage point.

1 basis point = (1/100)*(1%).

So 100 basis points = 100*(1/100)*(1%) = 1% percentage point

Neat!!

So if interest rates have been raised by 25 basis points = 0.25% percentage points => if the interest was 2.5%, now it will be 2.75%

Ah, finally I feel enlightened on this term.

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Comments»

1. Just somebody - January 31, 2008

You are 10,000 basis points correct! In other words, 100% ha ha ha


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