This problem involves calculating the present value of an annuity, which represents the loan you can afford given the monthly payments, interest rate, and loan term.

1. Loan Amount (Present Value of Annuity) Calculation:

We use the present value formula for an ordinary annuity:

$PV = P \times \frac{1 - (1 + r)^{-n}}{r}$

Where:

• $P$ = monthly payment = $325
• $r$ = monthly interest rate = $\frac{3\%}{12} = 0.0025$
• $n$ = total number of payments = $5 \, \text{years} \times 12 = 60$ months

Let's calculate the present value (loan amount).

2. Total Interest Paid:

Once we have the loan amount, we can calculate the total interest by comparing the total of all payments made to the initial loan:

$\text{Total Interest} = (P \times n) - PV$

I'll calculate this now.You are able to borrow $18,087.02.

The total interest you would pay over the 5 years is $1,412.98.

Would you like further details on the calculation or have any questions?

Here are 5 related questions you might find useful:

1. What would happen if you could make a higher monthly payment?
2. How would the loan amount change with a higher interest rate?
3. How does compounding frequency affect the loan cost?
4. How much would you save by making extra payments?
5. What if you chose a 7-year loan instead?

Tip: Paying extra towards your principal each month can significantly reduce the total interest paid over the life of a loan.