Understanding the Term ‘Per Annum’: Annual Financial Terms Demystified
What Does ‘Per Annum’ Mean?
‘Per Annum’ is a common Latin phrase used in finance that translates to ‘per year’ or ’each year’. It denotes the time frame for annual events, amounts, or calculations. This term is frequently used to describe anything that is expected to occur over the timespan of one year.
Real-World Examples of ‘Per Annum’
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Insurance Premium Payments: A Practical Example When purchasing an insurance policy, you may encounter the term ‘per annum’ in relation to how premiums are calculated and paid. For instance,
Suppose you purchase an insurance policy with a premium of $500 to be paid at the end of each year. In this case, your payment is $500 per annum.
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Interest Rates If a bank charges an interest rate on a loan, it is commonly expressed on a per annum basis.
Imagine you take out a loan of $10,000 with an annual interest rate of 5%. The interest you would owe per annum would be $10,000 * 0.05 = $500.
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Salary Agreement Many salary agreements specify annual income using the term ‘per annum’.
For example, if your employment contract states a salary of $60,000 per annum, it means you will earn $60,000 over the course of one year.
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Rental Income If a property generates rental income, it is often expressed in annual terms.
Suppose you own a rental property that yields $12,000 per annum. This means the property brings in $12,000 each year.
Key Takeaways
- The term ‘Per Annum’ signifies an annual basis, signifying rates, payments, or occurrences within one year.
- It is widely applied in finance, banking, insurance, and salary agreements to illustrate recurring annual transactions or commitments.
Frequently Asked Questions (FAQs)
Q: Where is ‘Per Annum’ most commonly used?
A: ‘Per Annum’ is most commonly used in finance, banking, and insurance to describe annual rates and payments.
Q: Can the term ‘per annum’ be used in legal contracts?
A: Yes, in fact, it is frequently used in legal contracts to clarify annual commitments or obligations.
Q: Is ‘Per Annum’ the same as ‘per year’?
A: Yes, ‘Per Annum’ is simply a Latin term meaning ‘per year’. They are identical in context and use.
Q: Can I use ‘per annum’ for non-financial terms?
A: While traditionally used in finance, ‘per annum’ can be applied to any context where yearly measurement or occurrence is relevant.
Related Terms: Annual Rate, Yearly, Per Year, Financial Year, Annual Interest Rate.
