How does compound interest differ from simple interest? What will be

How does compound interest differ from simple interest?

What will be an ideal response?

ANSWER

Compound interest occurs when interest paid on the investment during the first period is added to the principal; then,
during the second period, interest is earned on this new sum. The situation in which interest is earned on interest that
was earned in the past is referred to as compound interest. If you only earned interest on your initial investment, it
would be referred to as simple interest.