5-5. Two schemes of partial federal subsidy of public works projects have been made to local governmental units for a portion of the construction cost of approved used in the United States. In certain types of projects, outright grants have been projects, with the remainder of the cost to be repaid by the local units with interest has been to require the repayment of all the construction cost without any interest. remaining 70% to be paid at interest over a 20-year period. Another plan of suloidy This latter plan is suggested for a proposed college dormitory project. The govern ment is asked to put up $2,000,000 for this project, with the college paying back Assume that, all things considered, an appropriate interest rate to charge on such a "loan" is 7%. On this assumption, the plan to make the $2,000,000 repai- this amount at $50,000 a year for 40 years. many dollars ment in 40 years without interest really amounts to a subsidy of how (Ans. $1,333,400) ite tile clay from property owned by John