The debt service and the revenues in a city government are $3.1 million and $30 million. respectively.
1. What is the debt service ratio? If the benchmark debt Service ratio is 12 percent, does the city have additional debt capacity? Assume an annual interest rate of 5 percent and a twenty-year maturity for the debt, how much additional debt can the city carry?
2. Assume an annual interest rate of 4 percent and a twenty-year maturity for the debt, how much additional debt can the city have?
3. Assume an annual interest rate of 5 percent and a thirty-year maturity for the debt, how much additional debt can the city carry? Compare the results of the additional debt capacity amounts in the above three different circumstances in interest rate and maturity. Explain why they differ.
4. If the benchmark debt service ratio is 10 percent, does the city have additional debt capacity? Why or why not.?