Definition of Per Annum
Per annum means yearly or annually. It is a common phrase used to describe an interest rate. Often “per annum” is omitted, as in “I have a 4% mortgage loan.” or “This bond pays interest of 6%.”
Example of Per Annum
An example involves a supplier offering a credit customer an early-payment discount of 2% for paying an invoice in 10 days instead of paying the full amount in 30 days. In this example the supplier is giving up 2% of the invoice amount in order to be paid 20 days early.
To compute the rate per annum we restate the amounts by multiplying both the “2%” and the “20 days” by 18 (in order to get close to the 365 days in a year). The result is a per annum rate of approximately 36%.
Another example involves a business charging its customers 1.5% per month on any past due balance. The monthly rate of 1.5% can be converted to 18% per annum by multiplying the 1.5% times 12 months in a year.
