When money is borrowed, Interest is charged on the amount borrowed for a specific period. It is called simple interest. The borrower has to pay back the lender the sum of the principal amount and the total interest for the specified time. On the other hand, compound interest is calculated on the principal plus the interest for the previous period. The principal amount increases with every period, as the Interest payable is added to the principal. It means Interest is not only earned on the principal but also the interest of the previous periods. The amount due at the end of the period becomes the principal sum for the next period. Chapter 2 takes the students to a new topic, i.e. Interest and methods of calculating Simple and Compound Interest, without using formula.