3. Ask the learners 'Which servant will make the Master most pleased?' Principal Interest Total Returned INSTRUCTION (35 MINS) SERVANT 1 SERVANT 2 SERVANT 3 500,000.00 500,000.00 500,000.00 234,664.04 200,000.00 0.00 734,664.04 700,000.00 500,000.00 1. Differentiate simple and compounded interest. Simple Interest - the charging interest rate r based on a principal P over T number of years. Interest = PxrxT In the story above, Principal = PHP500,000 Rate = 8% Time = 5 years Thus, Interest = 500,000 x .08 x 5 = PHP200,000 Compound Interest - the interest in the first compounding period is added on the principal, which will then be the basi for the interest to be computed for the next period. So in our earlier example, the interest to be earned on the first year is equal to 500,000 x .08 = 40,000. The 40,000 interest will be added to the 500,000 principal which will then be the basis for interest computation for the second year; 540,000 x .08 = 43,200, and so on. The formula below shows the summary of the effects of adding on the interest, where m is the compounding frequency.