Basis Price
There are actually two ways to describe the value of a debt security, like a bond.
They have a price, just like a stock or any other asset. This describes the amount of cash it would take to buy them. Bonds also come with yields, which describe how much an investor will make on their investment on an annual basis. This second category is also called its basis price. So a bond with a yield of 6% has a basis price of 6% as well.
Okay, just to explain the name a bit:
Interest rates and yields are often described in what is called "basis points." A basis point is one one hundredth of a percent. So a bond with a 6% yield also has a yield of 600 basis points.
Might seem like semantics, but it clarifies changes in prices. If you have a bond yielding 6% and you say that the yield "rose by 1%"...uh, yeah. That's a little ambiguous. It could mean that it increased one percentage point to 7%, or that it increased by 1%, meaning it increased to 6.06%. Talking about the yield in terms of basis points fixes the problem. "The yield increased by 100 basis points" creates no confusion. Unless, like, you're talking to a complete noob.
Anyway, that terminology provides the "basis" part of the "basis price."
Related or Semi-related Video
Finance: What Is a Basis Point?124 Views
finance a la shmoop what is a basis point?
well one percentage point is a hundred basis points, half a percentage is 50
basis points, five percentage points is? yeah we're gonna make you do that one on [frowning man talks to camera]
your own. well the basic idea is that in very large financial transactions those
involved need highly granular computation grids, and basis points
divid interest rates much more tightly. if a company borrows three billion
dollars just noting that the rate is four percent is really vague. it would
need to be noted as four point zero zero percent. why? because just one basis point [equation on screen]
i.e. one hundredth of a percent per year on three billion dollars borrowed
is still a lot of money. that is one basis point on three billion bucks is
300 grand .so basis points are a real thing in high finance transactions and [smiling man talk to camera]
okay okay the answer is 500 basis points. yeah all right now you can go back to
spinning this thingy. [man spins fidget spinner]
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