Pro Rata Calculation: Understanding & Applying Pro Rata in Investing

Investor

"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 percent 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.

Step 1

Calculator

Calculate the total cost or return per period. For example, an investment might promise 12 percent per year, or an apartment might cost $500 per month.

Step 2

Calculate the percentage of the specified time period

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 percent 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.

Step 3

Multiply the percentage time by the total cost

Multiply the percentage time by the total cost to get the pro rata. In the investment example, multiply 0.5 times 12 percent, and you find that your pro rata return is 6 percent. For the apartment, multiply 0.667 times $500 and the product is $333.33, which is your pro rata rent for the first month.

Tip

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.