12 basis points on $8.5 billion

Question

An index fund charges an expense ratio of 12 basis points on \8.5 billion of assets. Solve in your head. What is the annual fee in dollars? Aim: under 10 seconds.

Accepted Answer

One basis point is 0.01\% = 10^{-4}, so 1 bp of the notional is just the notional shifted four decimal places: 1 	ext{ bp of } \8.5	ext{B} = 8.5 	imes 10^9 	imes 10^{-4} = \850{,}000. Then scale by the number of basis points: 12 	ext{ bp} = 12 	imes 850{,}000 = \10{,}200{,}000. The clean mental route: 12 	imes 8.5 = 102, and the unit is "hundred thousand" (since 1 bp of \1B is \100k), so the answer is 102 	imes \100{,}000 = \10.2 million. Takeaway. Compute "1 bp of the notional" first (shift four decimal places), then multiply by the bp count. Cache the anchor: 1 bp of \1B is \100k, s…

12 basis points on $8.5 billion

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