The total amount Bianca has to pay monthly to avoid interest capitalization is $13.43.
Compound interest is the amount charged on the principal amount and the accumulated interest with a fixed rate of interest for a time period.
The formula for the final amount of annual payment is given as,
[tex]A_p=P\times\left(\dfrac{r}{1-1+r}\right)^t\\[/tex]
Here, P is principal amount, the rate is r and time period is t.
Bianca took out a $2,600 unsubsidized stafford loan. She will be attending school for four years, and she wishes to have the loan paid off five years before its normal ten-year duration is finished.
Total months in ten years,
[tex]t=10\times12\\t=120[/tex]
The loan has an interest rate of 6.2%, compounded monthly. The interest rate is,
[tex]r=0.062[/tex]
Put the values in the above formula as,
[tex]A_p=(2600)\times\left(\dfrac{0.062}{1-1+0.062}\right)^{120}\\A_p=161.32[/tex]
Total payment paid by her in 1 year of time is,
[tex]M_p=\dfrac{161.32}{12}\\M_p=13.43[/tex]
Thus, the total amount Bianca has to pay monthly to avoid interest capitalization is $13.43.
Learn more about the compound interest here;
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