When looking at terms used in calculating returns for bond yields, both percentage and basis points come up. Basis points are used for both Treasury bonds and municipal bonds. While a percent is 1/100 of 1, or 0.01, the basis point is 1/100 of a percent, or 0.0001. A change in basis points on a bond is going to precipitate a change in returns, in one direction or other. For this reason, calculate the effect of a basis point change, employing elementary decimal calculations. While a basis point may look small, the impact of basis point changes will add up over time.
Step 1
Subtract the lower basis point amount from the higher. For instance, if the change is from 65 basis points to 30 basis points, the change is 35 basis points.
Video of the Day
Step 2
Convert the difference to a percentage, if you wish, dividing the basis point change total by 100. Thus 35 basis points becomes 3.5 percent. You can also achieve this by moving the decimal two places leftward.
Step 3
Convert the difference to a percentage, dividing the basis point change total by 10,000. Thus 35 basis points becomes 0.0035 percent. You can also achieve this by moving the decimal four places leftward. This provides a decimal number for revenue calculation.
Step 4
Multiply the decimal figure by a hypothetical investment amount (or actual one) to calculate revenue difference. Here, for a $6,000 investment, a change of 35 basis points comes to a difference of $21 in the interest paid.
Video of the Day