In the financial world, you may encounter the term Basis Points. It’s the usual hearing percentage and basis point simultaneously. Today In this article, we will show you how to convert the percentage to basis points in Excel with 2 suitable examples and a basic calculation with basis points. If you are also curious about it, download our practice workbook and follow us.
Overview of Basis Points in Excel
The term basis point is frequently used in finance. A basis point is equivalent to one percent of ten thousand or you can say 1/100 of 1%. So, the basic point can be written as
1 Basis Point = 1%/100 = 0.01% = 0.00001
This is commonly used to denote percentage changes. Since the basis points represent an absolute figure, they are highly trackable while changing percentages. By using basis points, you may get rid of the ambiguity of using the percentage while changing.
Let’s 10% interest rate + 10% increase in interest rate may create a dilemma in understanding whether the new interest rate will be 11% or 20%.
But if it was said like a 10% interest rate + 10 Basis points, it would be much easier to understand that the new interest rate will be 11% (We will discuss this elaborately within a while).
📖 Area of Application
We can apply the concept of basis points in many fields. Among them, the most mentionable are:
- Corporate Bonds
- Treasury Bonds
- Credit Derivatives
- Interest Rate Derivatives
- Equity Securities (For common stocks)
- Debt Securities (For mortgage loans)
The merits of using basis points are given as follows:
- Detailed Calculation: A basis point value demonstrates that financial characteristics like interest rates may be estimated without mistake. Additionally, it is practical when the amount is relevant and the rate fluctuation is less than 1%. In other words, it eliminates uncertainty and skepticism when examining both absolute and relative interest rates.
- Evaluating the Spread: Spread, which denotes the difference between an asset or security’s bid (purchase) and offer (sell) prices, is often expressed in basis points. It also expresses how different financial vehicles’ yields or returns on investment are. A good way to explain the price fluctuation is to express the spread in terms of basis points (bps).
How to Convert Percentage to Basis Points in Excel: 2 Suitable Examples
To demonstrate the examples, we are going to consider two different types of datasets. Both datasets have two common columns, Loan Type, and Interest Rate and they will show us the procedure to convert the percentage to basis points. Note that all the values used here are dummy values. In the real world, you may not see these, but something like these.
All the operations of this article are accomplished by using the Microsoft Office 365 application.
1. Apply Arithmetic Formula to Convert Percentage to Basis Points
In this method, we are going to use a conventional formula to convert the percentage to basis points in Excel. The value of the interest rate is in column C and we are going to show the result in column D.
The steps of this process are given below:
- First of all, select cell D5.
- Now, write down the following formula in the cell.
- Press Enter.
- After that. double-click on the Fill Handle icon to copy the formula up to cell D8.
- You will get the result.
Thus, we can say that our formula works perfectly, and we are able to convert the percentage to basis points in Excel.
2. Update Values Using Basis Point in Excel
In this process, we will update our interest rate with the help of the basis points. Our current interest rate is in column C and the basis points are in column D.
The steps of this procedure are given as follows:
- First, select cell E5.
- After that, write down the following formula in the cell.
- Now, press Enter.
- Then. double-click on the Fill Handle icon to copy the formula up to cell E8.
- You will get the updated interest rate.
Hence, we can say that our formula works successfully, and we are able to convert the percentage to basis points in Excel.
Create Basis Points Converting Calculator
In this workbook, we also add a basis point calculator. We can easily use it to get the interest rate using the basis point. Its creating and using procedure is quite simple, yet we are demonstrating the procedure below:
- First, select cell C6 and write down the following formula in the cell.
- Press Enter.
- Now, select cell C4 and write down the Interest Rate. Here, we write down 7%.
- Then, press Enter.
- After that, select cell C5 and write down the value of the Basis Points. For example, we write down 20.
- Again, press Enter and you will get your desired result automatically in cell C6.
Finally, we can say that our formula works effectively, and we are able to convert the percentage to basis points in Excel with our custom calculator.
Download Practice Workbook
Download this practice workbook for practice while you are reading this article.
That’s the end of this article. I hope that this article will be helpful for you and you will be able to convert the percentage to basis points in Excel. Please share any further queries or recommendations with us in the comments section below if you have any other questions or recommendations.
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