What does 12% per annum mean?

Understanding 12% per Annum

In financial terms, “12% per annum” refers to an annual interest rate or return on an investment. It indicates that for every 100 units invested, the investment will yield a 12-unit return within a year.

Calculating the Return

To calculate the return generated by a 12% annual interest rate, you can use the following formula:

Return = Principal Amount x (1 + Annual Interest Rate) – Principal Amount

For example, if you invest $1,000 at 12% per annum, the return after one year would be:

Return = $1,000 x (1 + 0.12) – $1,000
Return = $1,120 – $1,000
Return = $120

This means that your investment would have increased in value by $120.

Percentage Increase

The percentage increase in your investment can be calculated using the following formula:

Percentage Increase = (Return / Principal Amount) x 100

Continuing with the previous example, the percentage increase would be:

Percentage Increase = ($120 / $1,000) x 100
Percentage Increase = 0.12 x 100
Percentage Increase = 12%

This confirms that your investment has grown by 12% after one year.

Impact on Investments

An annual interest rate of 12% can have a significant impact on the value of your investments. Over time, the compound effect of this rate can lead to substantial growth. However, it’s important to note that market fluctuations and other factors can affect the actual returns achieved.

In conclusion, 12% per annum represents a yearly growth of 12% for every 100 units invested. It is used to calculate the return on investments such as bank deposits, bonds, and mutual funds. Understanding this term is essential for investors who want to make informed decisions about their financial goals.