Answer:

Simple interest is a type of interest that is calculated based on the principal amount of a loan or deposit, the interest rate, and the time period over which the interest is applied. The formula for calculating simple interest is:

Simple Interest = (Principal x Interest Rate x Time) / 100

For example, if you have a principal of $1000, an interest rate of 5% per year, and the interest is applied for a period of 2 years, the simple interest would be:

Simple Interest = ($1000 x 5 x 2) / 100 = $100

Compound interest, on the other hand, is interest that is calculated not only on the principal amount, but also on the accumulated interest of previous periods. In other words, compound interest is interest that is earned on top of interest. The formula for calculating compound interest is:

Compound Interest = Principal x (1 + Interest Rate/n) ^ (n*t) - Principal

where n is the number of times per year that interest is compounded, and t is the number of years over which the interest is applied.

For example, if you have a principal of $1000, an interest rate of 5% per year, and the interest is compounded quarterly for a period of 2 years, the compound interest would be:

Compound Interest = $1000 x (1 + 5/4) ^ (4*2) - $1000 = $110.94

As you can see, in this example the compound interest is higher than the simple interest, because the interest earned in each period is added to the principal, so that the interest in the following period is calculated on a larger amount.

Step-by-step explanation: