With simple interest, a depositor receiving annual interest from a deposit removes the interest and just reinvests the principal and earns the annual interest rate. With compound interest, the depositor reinvests the principal and interest every year i.e. the interest earns interest so the amount of interest received goes up each year.
Key learning objectives:
How do simple and compound interest differ?
Apply the simple vs compound interest rate scenario to an investment
Introduction to Options, Pricing and Use Cases
Peter Eisenhardt • 13:18