Basis points, percentages, decimal points

CFA Level III
#1

ok… so this is a bit embarassing, but can be confusing at some points.

1.0% = 100 basis points = 0.01

5 basis points = 0.05% = 0.0005

Anyone have easy ways to understand this and not screw up?

#2

One basis point is 1/100 of 1%.

I’m not sure it gets any easier than that.

(Full disclosure: I worked at PIMCO for 6 years, so basis points are now firmly entrenched in my DNA.)

#3

First, no question is embarassing. Actually nothing in the cfa curriculum is obvious. What may seem obvious to one person is not to another, all depending on your background I did not use to need this one at work so i just had to learn it by heart. Good luck!!

#4

Another way that i find it easier:

  1. to convert 1bps to percentage just type 1 on your TI BA II and press the “%” key once (your screen should show 0.01).

  2. to convert 1bps to decimals just type 1 on your TI BA II and press the “%” key twice (your screen should show 0.0001).

#5

A pretty fail-safe method:

  1. Write out the word BASIS

  2. Put a decimal after the B (i.e. B.ASIS)

  3. Insert the number of basis points at the end

1bp --> BASIS --> B.ASIS --> 0.0001

100bp --> BASIS --> B.ASIS --> 0.0100

#6

Thanks aloha312.

So if it is 50 bps then BASIS - > B.ASIS - > 0.0050