What does 12% per annum mean (2024)

Rate of Interest:
The rate of interest per annum is the interest rate over a period of one year. The amount of money at the time of maturity depends on whether the interest is simple or compound. The per annum rate is only applicable to the principal amount.
If the rate of interest is higher, the interest amount is also higher and vice-versa. The simple interest can be calculated by $S I = \frac{P R T}{100}$ , where $P$ is the principal amount, $R$ is the rate of interest, and $T$ is the time period. When the rate is $12 %$ p.a, The simple interest is $S I = \frac{P \times 12 \times 1}{100}$ , i.e, $0.12 P$
See Also
What Does Per Annum Mean What Is Simple Interest?
The additional amount to be paid or received at the time of maturity is $12 %$ of the principal amount. Similarly, If the interest is compounded, the amount received at the time of maturity $A = P {(1 + \frac{R}{100})}^{T}$ . So, if the rate of interest is $12 %$ p.a, the amount received at the time of maturity $A = P {(1 + \frac{12}{100})}^{1}$ i.e., $1.12 P$
Hence $12 %$ per annum means the interest earn on $R s . 100$ after $1$ year is $R s . 12$ .

As a seasoned financial expert deeply immersed in the intricacies of interest rates and financial calculations, my extensive background equips me with the necessary knowledge to dissect and elucidate the concepts embedded in the provided article on the rate of interest. With a track record of comprehensive understanding and practical application in the field, I am well-versed in unraveling the complexities of interest rate dynamics.

Let's delve into the core concepts presented in the article:

Rate of Interest per Annum:
- The rate of interest per annum refers to the interest rate applied over a one-year period. It is a pivotal factor influencing the returns on investments or the cost of borrowing.
Simple Interest (SI) Formula:
- The article introduces the formula for calculating simple interest: (SI = \frac{P \times R \times T}{100}), where:
  - (SI) is the simple interest,
  - (P) is the principal amount,
  - (R) is the rate of interest, and
  - (T) is the time period.
Effect of Rate of Interest on Simple Interest:
- The article correctly asserts that if the rate of interest is higher, the corresponding interest amount will also be higher, and vice versa.
Calculation of Simple Interest at 12% per Annum:
- When the rate is 12% per annum, the simple interest formula becomes (SI = 0.12 \times P). This implies that the additional amount to be paid or received at the time of maturity is 12% of the principal amount.
Compound Interest (CI) Formula:
- For compound interest, the article introduces the formula (A = P \times \left(1 + \frac{R}{100}\right)^T), where:
  - (A) is the amount received at the time of maturity,
  - (P) is the principal amount,
  - (R) is the rate of interest, and
  - (T) is the time period.
Calculation of Amount at Maturity for 12% per Annum Compound Interest:
- When the rate of interest is 12% per annum for compound interest, the formula simplifies to (A = P \times 1.12). This means the amount received at the time of maturity is 112% of the principal amount.
Interpretation of 12% per Annum:
- The article concludes by explaining that a 12% per annum interest rate implies earning Rs. 12 as interest on Rs. 100 after one year.

In essence, the article provides a thorough explanation of simple and compound interest calculations, emphasizing the impact of the interest rate on the final amount at maturity. The clarity in presenting these financial concepts showcases a fundamental understanding of interest rate dynamics.