The amount due for the purchase of credit for prior police service under this subchapter shall be computed by:
(1) multiplying the normal cost rate for the police pension plan a police officer is buying into, but not to exceed 10%, by the police officer's average annual rate of compensation over the first three years of service with the police department; and
(2) multiplying the product from paragraph (1) by the number of years and fractional part of a year of creditable prior police service being purchased together with interest at the rate of 4.75% compounded annually from the date of initial entry into full-time service with the police department to the date of payment.