<human>:  Could you explain the concept of compound interest and how it works?
<bot>: Compound interest is a type of interest calculated on the initial principal amount and also on the accumulated interest of previous periods. Essentially, interest is paid on interest, resulting in the amount of interest earned growing each period. Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one. For example, if an amount of $1000 is invested at an interest rate of 10% for one year, with compound interest calculated monthly, the final amount will be $1,105.05.