# Basis point

A basis point (often denoted as bp, bps or ; rarely, permyriad) is a unit that is equal to 1/100th of 1%. It is commonly used to denote the change in a financial instrument, or the difference (spread) between two interest rates; although it may be used in any case where percentages are used, it is used for convenience when quantities in percentage points are small. It also avoids the ambiguity between relative and absolute discussions about rates: does a "1% increase" in a 10% interest rate mean that it goes from 10% to 10.1%, or to 11%?

The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. The type of interest rate has to be specified (e.g., bond yield, zero-coupon yield, Act/360 money market rate, Act/365 money market rate, etc).

Since certain loans and bonds may commonly be quoted in relation to some index or underlying security, they will often be quoted as a spread over (or under) the index. For example, a loan that bears interest of 0.50% above LIBOR is said to be 50 basis points over LIBOR.

## Examples

A rate change from 5% to 6%, reflects a change of 1% or 100 basis points (Note 5% to 6% is actually a 20% increase: by using basis points, it is clear that the change in rate as an absolute number is being discussed.)

A rate change from 6.7% to 6.9% reflects a change of .2% or 20 basis points. A rate change from 2.75% to 3.20% reflects a change of .45% or 45 basis points

## Related units

Financial instruments is a term used to denote any form of funding medium - mostly those used for borrowing in money markets, e. g. bills of exchange, bonds, etc. (Ref: [1] )

## Categorization

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stock market index is a listing of stock and a statistic reflecting the composite value of its components. It is used as a tool to represent the characteristics of its component stocks, all of which bear some commonality such as trading on the same stock market exchange, belonging
In finance, yield is a percentage that measures the cash returns to the owners of a security. Normally it does not include the price variations, at the difference of the total return.

The term is used in different situations to mean different things.
worldwide view.
Fixed income refers to any type of investment that yields a regular (or fixed) return.

For example, if you borrow money and have to pay interest once a month, you have issued a fixed-income security.
Security is the condition of being protected against danger or loss. In the general sense, security is a concept similar to safety. The nuance between the two is an added emphasis on being protected from dangers that originate from outside.
bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity.
Zero coupon bonds are bonds that pay no periodic interest payments, or so-called "coupons". Zero coupon bonds are purchased at a discount from their value at maturity. The holder of a zero coupon bond is entitled to receive a single payment, usually of a specified sum of money at
In finance, a day count convention determines how interest accrues over time for a variety of investments, including bonds, notes, loans, medium-term notes, swaps, and FRAs.
money market is the global financial market for short-term borrowing and lending. It provides short-term liquid funding for the global financial system. The money market is where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and
In finance, a day count convention determines how interest accrues over time for a variety of investments, including bonds, notes, loans, medium-term notes, swaps, and FRAs.
The London Interbank Offered Rate (or LIBOR, pronounced /'laɪ.bɔː/) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale
Percentage points (pp) are the proper unit for the arithmetic difference of two percentages.

Consider the following hypothetical example: in 1980, 40 percent of the population smoked, and in 1990 only 30 percent smoked.