Hazem,
Simple interest is applied to the principal only.
Compound interest is applied to the principal and the interest already earned.
For simple interest, the interest earned in any period is P(i), where P is the principal and i is the interest rate expressed as a decimal. The interest earned each year will be the same since you only earn interest on the principal.
For compound interest, we use the formula,
A = P(1+i)t
where
A = accumulated value
P = principal
i = interest rate expressed as a decimal
t = number of years
Interest earned is A-P
Interest earned each year will vary as each year the prior year's interest is added to principal.
