In the financial world, you may encounter the term **Basis Points. **It’s the usual hearing percentage and basis point simultaneously. Today I will show you how to convert percentage to basis points and a basic calculation with basis points. You can use any version of Excel.

But first things first, let’s know about today’s practice workbook.

Today’s workbook has two tables. Both the tables have two common columns, **Loan Type**, **Interest Rate**. You may have already realized that our practice will be based on the interest rate of different types of loan. In the real finance scenario, the basis points are usually used against different percentage changes. We are using these values to create a similar scenario.

Note that all the values used here are dummy values. In the real world you may not see these, but something like these.

For the table at the top, we will convert percentage values into basis point formats. And for the table at the bottom, we will calculate interest change using the basis point.

## Practice Workbook

I have shared the workbook. You can download it from here.

## Basis Point Basics

You may wonder, why are we calculating basis points or what is the use of basis points in finance?

The term basis point is frequently used in finance. Basis point is equivalent to one percent of ten thousand or you can say 1/100 of 1%. So, basis point can be written as

**1 Basis Point = 1%/100 = 0.01% = 0.00001**

This is commonly used denoting percentage changes. Since the basis points represent an absolute figure, they are highly trackable while changing percentages.

Using basis points, you may get rid of the ambiguity of using 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, **10% interest rate + 10 Basis points**, it will be much easier to understand that the new interest rate will be 11% (We will discuss this elaborately within a while).

## Basis Points Calculation

### 1. Convert Percentage to Basis Points

To convert percentage to basis point all you need to do is simply multiply the percentage value with 10000.

**Percentage * 10000 = Basis Point**

Write the formula in Excel.

Here I have multiplied the Interest rate for **Home Loan** with 10000, and it gave the basis point. All the calculations will be done using **Cell Reference**.

Do the same for the rest of the loan types.

For practice purposes, you can write the formula in every cell of the column. But while doing in a practical scenario **AutoFill** will be handy.

### 2. Update Values using Basis Point

Let’s start with an example, I hope that will give you a better understanding.

Let’s say, you want to pursue a home loan from a bank. The bank told you, for a home loan you will have to pay 7% interest with 20 basis points. So, it means that your interest rate will be 7% + 20/10000.

If you read the earlier paragraph carefully, by the meantime you have understood how to calculate new values using basis points. As the basis points usually comes with percentage changes, the formula will be like

**Percentage + (Basis Point / 10000)**

Write the formula in the Excel.

Here I’ve added the **Interest Rate** of **Home Loan** to the result of **Basis Point** for Home Loan divide by 10000.

Basis point 20, divided by 10000. So, the result is 20/10000 = 0.002. Every decimal point has a percentage equivalent value. 0.002 is equivalent to 0.2%.

Now this 0.2% is being added to the **Interest Rate** 7%, and provided 7.2% **Updated Interest Rate**.

Do the same for the rest of the values or exercise Excel **AutoFill** feature.

## Conclusion

That’s all for today. I’ve tried bringing out the method of converting percentage to basis points in Excel. Hope you will find that helpful. Feel free to comment if anything seems difficult to understand. You can also write your ways of doing the task.

In today’s practice, I’ve shown the basis point of increasing the original interest rate, what if it decreases? Write in the comment section.

## Calculator

You can use today’s workbook as a calculator to count the basis point of your interest rate (or percentage value). You will find a sheet called **Calculator**

Go to that sheet, and insert values in the fields. It will provide you the answer you are looking for.