How to calculate basis points

Written by stephen byron cooper | 13/05/2017
How to calculate basis points
The Bank of England changes the interest rate by percentage points. (Jupiterimages/ Images)

A basis point is one hundredth of one percent. In the financial world, increase and decreases in stock prices are measured to a series of decimal places. If there is a small movement in the price, commentators will refer to that move as a number of basis points rather than going into fractions of one percent. Similarly, when the Bank of England lowers or raises interest rates, they do it in terms of basis points. Calculating the basis points of a percentage is relatively easy once you know the percentages you are working with.

Convert a figure into a percentage. You could look at the rise in price of goods in your supermarket, or check the raise of the stock exchange index on that day to get an example to work with.

Take a base figure and then find the difference between that base figure and the altered state of that figure. For example, The FTSE 100 share price index stands at 6500 when the market opens and then stands at 6510 at market close. Deduct 6500 from 6510 to find the amount changed. In this case, the index rose by 10.

Express the amount of change as a percentage. In the FTSE 100, the change was 10. As a percentage of 6510 this works out as 10/6510 * 100 = 0.1536.

Multiply the percentage amount by a hundred to get the number of basis points. In the FTSE 100 example 0.1536 percent times by 100 gives 15.36 basis points. It is usual to express basis points as whole numbers so round this number to get 15 basis points.

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