What does 12% per annum mean?
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 , where is the principal amount, is the rate of interest, and is the time period. When the rate is p.a, The simple interest is , i.e,
The additional amount to be paid or received at the time of maturity is of the principal amount. Similarly, If the interest is compounded, the amount received at the time of maturity . So, if the rate of interest is p.a, the amount received at the time of maturity i.e.,
Hence per annum means the interest earn on after year is .