Basis

Basis is a term that has many meanings depending on the use. It means one thing when referring to property and a completely different thing when talking about finance and interest rates.

When it comes to property and taxes, the term basis refers to the initial investment in a piece of property. For example, a property bought initially at $1000 will always have a basis of $1000, even if the current worth or value of the property has gone up or down. In case the property’s value does appreciate due to additional investments made on your part, such as renovating the property, then the changes will reflect as part of the adjusted basis. The same is true if the property depreciates.

When it comes to finance, the term basis often refers to the basis point. The basis point is a unit of measure used to describe the percentage change in the value or rate of a financial instrument, usually interest rates and bond yields. A basis point is equal to 1/100th of a percentage point per annum. For example, if the interest rate changes by 100 basis points it means that an interest rate of 5% will go up or down by 1%, resulting in a 4% or 6% interest rate, depending on whether the word change means an increase or decrease.

To get the basis point just get the difference between the previous rate and the current rate and divide the results (expressed in decimal form) by 0.0001.

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