Take a real business activity example and relate with the concept of commission depreciation and simple and compound interest rate?

Answer & Explanation: Commission: This is a percentage earned on total sales. Using a health insurance company as an example, brokers earn commission on premium received by the company.

Depreciation: This relates to the wear and tear of an asset. The health insurance company fixed assets such as motor vehicle, furniture and equipments will be depreciated and expensed periodically.

Simple and compound interest rates: Simple interest rate is a rate charged directly on the principal amount deposited. If the health insurance company decides to invest in fixed income or call deposits with a bank for a period of 1 year. The bank can put a specific rate that will be paid to the company as an interest earned.

Compound interest rate on the other hand is beneficial to the financier. It is a rate charged on both the principal amount and the interest earned. For instance if the company decides to take a loan with the bank, the bank can charge a compound interest rate.

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