Final answer:
Compound interest is an interest rate calculation on the principal plus the accumulated interest. It leads to exponential growth in the total amount over time.
Step-by-step explanation:
Compound interest is a concept in mathematics and finance that involves earning interest on both the original amount of money and the accumulated interest.
This means that the interest earned in each period is added to the principal amount, and future interest is then calculated based on the updated total.
For example, if you have $1000 in a savings account with a 5% interest rate that compounds annually, after the first year, you would earn $50 in interest. In the second year, you would earn 5% interest on the new total, which is $1050. This compounding effect results in the growth of your savings over time.