2.5 basis points on a $400 million order

Question

A broker charges a commission of 2.5 basis points to execute a \400 million order. Solve in your head. What is the commission in dollars? Aim: under 10 seconds.

Accepted Answer

Start with one basis point of the notional, the notional shifted four decimal places: 1 	ext{ bp of } \400	ext{M} = 4.0 	imes 10^8 	imes 10^{-4} = \40{,}000. Then scale by 2.5: 2.5 	ext{ bp} = 2.5 	imes 40{,}000 = \100{,}000. Multiplying by 2.5 is easy in your head: it is "double and add a half," so 2 	imes 40{,}000 = 80{,}000 plus 20{,}000 = \100{,}000. Equivalently, 2.5 	imes 4 = 10 and the unit is "ten thousand" (since 1 bp of \100M is \10k), giving \100{,}000. Takeaway. Anchor on 1 bp of the notional, then multiply by the bp count, using tricks like "times 2.5 = double plus half."…

2.5 basis points on a $400 million order

Your answer

More Mental Math questions