What is a Basis Point?
In finance a basis point is equal to one hundredth of a percentage point (or 1/10,000). A basis point is also known as bp, “beep”, or “bip”. The unit (1/10,000) can also be called a permyriad.
1 basis point = 1 permyriad = one one-hundredth percent
1 bp = 1‱ = 0.01% = 0.1‰ = 10−4 = 1⁄10000 = 0.0001
1% = 100 bp = 100‱
The reason why basis points are used is that they are useful in representing the percentage differences of less than 1%. This is extremely common when calculating changes in interest rates and yield of financial instruments.
A basis point is the smallest measure used in quoting the yield of a debt instrument, such as a bond.
A different in 0.10 percentage points in the interest rate is equal to a 10 basis point change. A 46 basis point increase of the yield of a bond is equals to a 0.46% increase in yield.