‘Per Annum’ is a Latin phrase that translates directly to “by the year” or “for each year.” In modern usage, it is synonymous with terms like “annual” and “annually.” It is a term frequently encountered across various fields such as finance, economics, banking, and real estate, indicating something that occurs or is measured each year.
Importance in Finance and Economics
Interest Rates
One of the most common uses of ‘per annum’ is in the context of interest rates. For example, if a bank advertises an interest rate of 5% per annum, it means that the interest rate is calculated yearly.
Growth Rates
Economic growth rates are also expressed per annum to indicate the annual rate of economic expansion. For instance, Gross Domestic Product (GDP) growth might be stated as 3% per annum, suggesting the economy grows at that rate each year.
Examples
- Loans: If you take out a loan with an interest rate of 6% per annum, the interest is calculated annually.
- Investments: An investment might have a projected return of 8% per annum.
- Real Estate: Rental income might be expressed per annum to standardize measurements across time.
Historical Context
The use of ‘per annum’ dates back to Roman times and has been maintained in modern financial language due to its precision and clarity. The Latin origin underscores the term’s enduring significance in law and finance.
Applying ‘Per Annum’ in Different Sectors
Finance and Banking
- Mortgages: A mortgage might carry a fixed interest rate of 4% per annum for its term.
- Savings Accounts: When a savings account offers a yield of 2.5% per annum, it means the interest is calculated and credited each year.
Economics
- Inflation Rates: National inflation rates are typically reported per annum to reflect the annual change in price levels.
- Economic Indicators: Economic indicators such as employment growth or industrial production are often measured per annum for standardized reporting.
Comparisons and Related Terms
- Per Diem: By the day; used for daily allowances or wages.
- Per Month: By the month; used for monthly expenses or income.
- Annual Percentage Rate (APR): A measure of the cost of credit, expressed as a yearly interest rate.
FAQs
What does '5% per annum' mean?
How do you calculate interest per annum?
Interest per annum can be calculated using the formula:
Is 'per annum' the same as 'yearly'?
References
Summary
‘Per Annum’ is a vital term used extensively across finance, banking, and economics to denote an annual rate or occurrence. Its precise and standardized meaning makes it indispensable for financial planning, economic analysis, and legal contracts.
Understanding ‘per annum’ ensures better financial literacy and aids in making informed decisions when dealing with loans, investments, and economic forecasts.
