What is Points?
1. A 1% change in the face value of a bond or a debenture.
2. In futures contracts, a price change of one one-hundredth, or 1% of one cent.
3. A $1 price change in the value of common stock.
4. In real estate mortgages, the initial fee charged by the lender, with each point being equal to 1% of the amount of the loan. It can also refer to each percentage difference between a mortgage’s interest rate and the prime interest rate. Read more for examples and further explanation including related video clips and also comments
Example explains Points
1. It is common to hear changes in bond prices stated in points. For example, if a bond with a face value of $1,000 increases in price by $20, it is said to have risen two points (2%).
2. For futures traded in decimal form, the price of a contract can change in increments of one point. This means that if a futures contract decreased in price by 50 points, it would have dropped $0.50.
3. If a stock is up two points, then it really means that the stock is up $2. Don’t confuse points with percentages when talking about stocks. If a $5 stock rises by $2, it has risen two points. Similarly, if a $50 stock rises by $2, it has also risen two points, although the two-point increase is a much greater percentage change for the $5 stock than for the $50 stock.
4. A loan may be quoted as prime plus two points. This means that your loan interest rate is 2% higher than the prime rate of lending. If the prime rate was 5%, your mortgage rate would be 7%. If your bank also charged an up-front fee for the loan, it could express that fee in points. If your loan was $100,000 and your bank charged a $3,000 fee, the fee could be stated as three points.
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