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Basis Points

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Margin vs Markup
Collateralized Debt Obligations
Are You Collecting Business Data?
Benchmarking

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%.

When To Use Basis Points

In finance, changes in the values of financial instruments or interest rates may be denoted in basis point. They 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 using the term basis point. The rate may be described as Prime Rate plus 50 basis point. If Prime Rate is 5%, then the rate on that loan or debt instrument would be 5.5%.

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Basis Definition

See Also:
Basis Points
Make or Buy Business Decision
Collateralized Debt Obligations
Carried Interests
Letter of Credit

Basis Definition

In accounting, the basis definition is the value of an asset for tax purposes. The basis of an asset is the cost of the asset reported to the Internal Revenue Service (IRS). It includes the original purchase price of the asset plus any acquisition expenses. The basis may increase by the value of any subsequent capital improvement in the asset. Or itt may decrease due to depreciation. Also, refer to basis as cost basis or tax basis.

The basis is also the amount used to calculate gains or losses if and when the asset is sold or scrapped.

Basis Examples

For example, if shares of common stock are purchased for $1,000 and sold three years later for $1,500, then the basis is still $1,000. As a result, the taxpayer would recordcapital gain of $500.

Likewise, if you purchase equipment for $1,000 with installation and shipping fees of $500, then the basis for that asset would be $1,500. If the equipment is depreciated down to $500 and then sell it for $300, then the taxpayer would record a loss of $200.

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