Compound interest is interest paid not only on the principal but also on any interest that has already
accrued. So, for example, if you borrowed $1,000
for 2 years at 15% interest compounded annually,
you would owe $1,000(1.15) or $1,150 after the
first year. After the second year you would owe
$1,150(1.15) or $1,322.50. Paying simple interest
you would have owed $1,000 plus $150 after the
first year and an additional $150 after the second
year, for a total of $1,300.