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Test Your Knowledge: Stock Options Quiz
Test your basic knowledge of stock options. Please answer the following 10 questions. This quiz is also a course of study. The answer key links to content on the topic for follow-up reading
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1. What is an employee stock option?

An option to be paid in stock instead of cash
A right to buy company stock at a guaranteed discount for a fixed term
A right to buy company stock at a specified price for a fixed term
A grant of company stock as a salary bonus

2. Which order of events is accurate for most stock options?

Vesting, grant, exercise
Grant, exercise, vesting
Vesting, exercise, sale
Exercise, vesting, sale

3. How long is the term of most stock option grants?

As long as you are employed at the company
Until vesting
10 years, regardless of whether your employment ends
10 years, unless your employment ends sooner

4. After you leave a company, what can happen to unvested stock options, and how long might you have to exercise stock options before expiration?

Depends on the reason for leaving the company
All unvested options are forfeited; you have no time to exercise them, as they expire when you leave the company
Vesting continues, and you have until the end of the option term to exercise
Any of the above. You need to check your stock plan and grant agreement for the treatment of unvested stock options and the post-termination exercise period

5. Which can you not use to exercise stock options?

Shares from a 401(k)
Vested shares of restricted stock
A stock swap with company stock you already own
Cash

6. Which of the following can senior executives not use to exercise stock options?

Vested shares of restricted stock
A loan from the company
Shares of company stock bought on the open market
A personal check

7. When are NQSOs taxed?

Never: they are exempt from tax when held for more than three years
At exercise
At grant
At sale

8. What is the holding period requirement for obtaining the favorable tax treatment available to incentive stock options?

One year from the date of grant
One year from the date of exercise
One year from the date of grant and one year from the date of exercise
Two years from the date of grant and one year from the date of exercise

9. The exercise price of your vested options is $21.83 a share. The stock price is $23.18. Your options are:

Underwater
Underpriced
In the money
Worthless

10. How will you know for certain that your unexercised options will soon expire?

You are close to mandatory retirement age
Your company notifies you in writing
Your company's broker notifies you by email with the exercise forms
None of the above. It's your responsibility to check your grant agreement and understand the stock plan rules

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