How to calculate a pro rata
"Pro rata" is Latin for "in proportion to." It is commonly used in investing to represent the proportion of a company that is owned or the rate of return over a given period of time. For example, an investor might purchase an investment that promises 10 per cent per calendar year.
If the investment is made in July, the return for the first year would be prorated. Costs can also be prorated. For example, if an apartment has a monthly rent, but the first month you don't live there the entire month, the rent will be prorated.
Calculate the total cost or return per period. For example, an investment might promise 12 per cent per year, or an apartment might cost £325 per month.
- "Pro rata" is Latin for "in proportion to."
- For example, if an apartment has a monthly rent, but the first month you don't live there the entire month, the rent will be prorated.
Calculate the percentage of the specified time period that you will be participating. In the investment example, if you were to buy the investment at the start of July, you would be participating from July through December, 6 out of 12 months, or 50 per cent of the time. If you were to live in the apartment for 20 out of 30 days of the month, the percentage would be 66.67.
Multiply the percentage time by the total cost to get the pro rata. In the investment example, multiply 0.5 times 12 per cent, and you find that your pro rata return is 6 per cent. For the apartment, multiply 0.667 times £325 and the product is £216.6, which is your pro rata rent for the first month.
- Make sure you use the correct amount for the total period. For example, rent in February may be based on a 28-day scale, while July might be based on a 31-day scale.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."