Say the City of Tucson now has an annual budget of $500 million, and by city charter, it cannot spend more than 10% of its budget on annual debt service, including both principal and interest payment. The city's existing annual debt payment is $40 million. Suppose the city needs to borrow $140 million for a capital project, and the debt will be paid back over 20 years with equal annual payments.

2. If the current interest rate is 5% for a 20-year loan, can the city afford this new debt? You need to show me the calculation how you arrive at your answer. (0.5 point)
4. If the City can't afford this debt at 5%, then what is the highest possible interest rate (you can just use a whole number without fraction, such as 4%, 3%, or 2%) at which the city can afford this new debt? You also need to show me the calculation how you arrive at your answer. (0.5 point)
5.  
6. Please use this example to explain why lower long-term interest rate is desirable in the face of a weak economy. 
7.