What does a basis point measure?

What does a basis point measure?

• A. A percentage point
• B. A tenth of a percent
• C. A hundredth of a percent
• D. Two percent

Answer: (C)

Basis points measure small changes in interest rates, yields, or fees. One basis point equals 0.01 percentage point, so 100 basis points equal 1 percentage point. This makes it easy to express tiny shifts without talking in decimals or whole percentage points. For example, a rate move from 3.50% to 3.75% is a 25 basis point change, i.e., 0.25 percentage points. The correct description is that a basis point is a hundredth of a percent. A percentage point is 1%, a tenth of a percent is 0.1% (10 basis points), and two percent is much larger.

Basis points measure small changes in interest rates, yields, or fees. One basis point equals 0.01 percentage point, so 100 basis points equal 1 percentage point. This makes it easy to express tiny shifts without talking in decimals or whole percentage points. For example, a rate move from 3.50% to 3.75% is a 25 basis point change, i.e., 0.25 percentage points. The correct description is that a basis point is a hundredth of a percent. A percentage point is 1%, a tenth of a percent is 0.1% (10 basis points), and two percent is much larger.