Interest capitalization refers to the addition of interest earned to the principal amount, Roderigo will pay $7353.80 in interest to finish the amount of the loan.
Interest capitalization passes when owed interest is added to the principal amount of the loan. Interest is then charged on that advanced principal balance.
Computation of the amount of interest:
Given,
Principal(P) = $8,575,
Rate(i) = 7.1%
Compounded Monthly:
[tex]\dfrac{\frac{7.1}{12}}{1000} = 0.0059[/tex]
Time period (n):
[tex]\text{12 Months} \times \text{4 Years} = 48 \text{Months}[/tex]
Now, apply the given values in the formula of compound interest(CI):
[tex]\text{A} = \text{P}\times{(1+i)^n}-1\\\\\\\text{A} =\$8,575\times(1+7.1\%)^4^8-1\\\\\\ \text{A} = \$11,381.94[/tex]
Then apply the formula of EMI by taking $11,381.94 as a principal, we have,
Here,
[tex]\text{n} = 12\text{Months}\times\text{10Years} = 120\text{Months}[/tex]
[tex]\dfrac{\text{p}\times i \times(1+i)^n}{(1+i)^n-1}\\\\\\\\\dfrac{\$11,381.94\times 0.0059\times(1+0.0059)^1^2^0}{(1+0.0059)^1^2^0-1}\\\\\\=\$132.74[/tex]
Now, the total payment made in 120 months would be:
[tex]\$132.74\times120=\$15,928.80[/tex]
Hence, Interest paid will be:
[tex]\$15,928.80-\$8,575 = \$7,353.80[/tex]
Therefore, the total amount of interest that would be paid by Roderigo is $7,353.80.
Learn more about interest capitalization, refer to:
https://brainly.com/question/417585
