See Also:
Accounts Payable
Margin vs Markup
Collateralized Debt Obligations
Are You Collecting the Data You Need to Run Your Business?
BenchmarkingBasis Points Definition
A basis point is one hundredth of a percentage point. A single
basis point would look like this: 0.01%. Fifty basis points is a half a percentage point: 0.50%. 100 basis points equal one percentage point: 1.00%.
In finance, changes in the values of
financial instruments or
interest rates may be denoted in basis points. Basis points are used to describe quantities less than one percent. When the Federal Reserve lowers its fed funds rate by a half a percent, the media may report that the fed funds rate was lowered by 50 basis points.
Similarly, the interest rate on a
loan or debt instrument that is based on a reference rate, such as
LIBOR or the
Prime Rate, may have a spread quoted in basis points. The rate may be described as Prime Rate plus 50 basis points. If Prime Rate is 5%, then the rate on that loan or debt instrument would be 5.5%.