Explain simple interest and compound interest ?

Simple interest is calculated on the principal amount of a loan or investment at a fixed rate over a specific period of time. It is calculated by multiplying the principal amount by the interest rate and the number of years the money is invested or borrowed for.

Compound interest, on the other hand, is calculated on both the principal amount and the accumulated interest from previous periods. This means that the interest is added to the principal amount, and the new total becomes the basis for calculating interest for the next period. Compound interest allows for exponential growth of the investment or loan over time.

In simple interest, the interest remains constant throughout the investment or loan period, while in compound interest, the interest amount increases over time as the principal amount grows. Compound interest typically results in higher returns compared to simple interest for the same principal amount and interest rate.