to plug in P = 1500, r = 0.02 and n = 12 to get the answer above. This is the compound interest formula. The interest rate r is divided into n = 12 to account for monthly compounding. The original exponent t turns into 12t. So for instance, if t = 2 years go by, then 12*t = 12*2 = 24 months have gone by.