Ace the Head Clover Assessment 2026 – Unlock Your Potential and Bloom Big!

When interest compounds, each year's interest is earned on the previous balance. The amount after two years is 1000 × (1 + 0.05)^2. Since (1.05)^2 = 1.1025, the balance becomes 1000 × 1.1025 = 1102.50. The interest earned is 1102.50 − 1000 = 102.50. So the interest earned after 2 years is 102.50. This is higher than simple interest, which would be 100, because you’re earning interest on the interest from the first year.