pro rata

adverb pro ra·ta \ (ˌ)prō-ˈrā-tə , -ˈrä- , -ˈra- \
Updated on: 13 Oct 2017

Definition of pro rata

:proportionately according to an exactly calculable factor (such as share or liability)

pro rata

adjective

Recent Examples of pro rata from the Web

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Origin and Etymology of pro rata

Latin


Financial Definition of PRO RATA

pro rata

What It Is

Pro rata refers to the proportional distribution of a sum across a number of units.

How It Works

A Latin term meaning "in proportion," pro rata is a method of allocating fractional amounts of something equally among all parts of a whole. Where interest rates are concerned, the practice of pro rata allows a periodic interest rate to be divided into smaller units (e.g. converting an annual rate into a monthly rate). This action is called "prorating" and may be used in reference to a bond being sold at discount; to a total dividend as divided among entitled shares of stock outstanding; or to an annual insurance premium adjusted for the remaining number of months in the year following the purchase of a policy.

To illustrate, suppose company XYZ declares a $1 million cash dividend. There are currently one million entitled shares outstanding in the market. Company XYZ, therefore, prorates the dividend to $1 per share based on the following math:

$1,000,000 dividend / 1,000,000 shares outstanding = $1 dividend per share outstanding

Why It Matters

The pro rata system provides a method for allocating single-unit amounts among several smaller units. This becomes particularly important for the sale and purchase of time-sensitive items such as interest-bearing securities and annual contracts or periodical subscriptions.


Law Dictionary

pro rata

adverb pro ra·ta \ ˌprō-ˈrā-tə, -ˈrä-, -ˈra- \

legal Definition of pro rata

:proportionately according to an exactly calculable factor (as share or liability)

pro rata

adjective

Origin and Etymology of pro rata

Latin


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