Willy Wise participates in his employer's 401(k) retirement plan and contributes $4000 in the course of the year out of his $60,000 income. (His employer matches Willy's contribution dollar for dollar.) Willy's contributions are tax deductible (i.e., deducted from his taxable income) and he is in the 25% federal income tax bracket. How much less does Willy pay in federal income taxes that year compared to a co-worker who makes the same salary but does not participate in the 401(k) plan?

$500

$1000

$2000

$3000

$4000

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Question 372 pts

Imagine that stock in Company XYZ is selling for $40 per share. There are a million shares of stock, and Company XYZ made $2 million in profits last year. What is its P/E ratio?

1

10

20

25

50

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Question 382 pts

Last year, you purchased a 20-year bond from a snack food company -- let's call it Couch Potato -- with a face value of $1000 and an interest rate of 6% per year. This year, new bonds sold by other snack food companies with similar risk characteristics to Couch Potato are currently offering only 4% interest per year. What will be the approximate value at which you could sell your Couch Potato bond today? (This is a concept question; you should be able to estimate the answer without doing the exact calculation.)

$667

$750

$1000

$1250

$1775

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Question 392 pts

Nathan buys several shares of ABC Corp. stock for $60 each. At the end of one year, the stock price has risen to $66. Plus he was paid a dividend of $3 per share. What is the approximate rate of return (or yield) on this investment for the year. (You can ignore any commissions or taxes.) Remember: the rate of return is the total return as a percentage of your initial investment.

6 percent

9 percent

12 percent

15 percent

18 percent

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Question 402 pts

Think of a $1,000 bond with a 6% ($60) coupon that matures several years into the future. If you manage to buy it for $850, the bond's CURRENT yield is approximately:

4%

5%

6%

7%

8%