Test Your Knowledge: Financial Planning Quiz
To make the most of equity compensation, planning is needed. Test your knowledge of financial planning for stock options, restricted stock, restricted stock units, and employee stock purchase plans.

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. Why might a grant of restricted stock or restricted stock units (RSUs) be better than a grant of stock options?

There is no vesting period with restricted stock/RSUs, so you don't have to wait
A grant of restricted stock/RSUs is guaranteed to have at least some value, unless your company's stock price drops to zero
Restricted stock/RSUs receive favorable tax treatment that is unavailable to options
All of the above

2. For NQSOs, why do some financial planners often recommend waiting to exercise until near the end of the term?

The longer you wait, the bigger their fee
Tax cuts tend to lower tax rates in the long term
Taxes on any stock-price appreciation above the exercise price of an option are deferred till you exercise the option
Inflation means your grant is worth more in real terms after several years

3. Why might a grant of stock options be better than a grant of restricted stock/RSUs?

Stock options have guaranteed value
Stock options have no vesting period, so you don't have to wait to exercise them
With a rising stock price over a long term, stock options offer much greater investment leverage and potential gains
None of the above

4. How long must you hold NQSO stock to have the gain taxed as long-term capital gain?

One year, starting on the day after exercise
18 months, starting on the day after exercise
Six months, starting on the day after exercise
Two years, starting on the day after exercise

5. When does the capital gains holding period for restricted stock begin if you have not made a Section 83(b) election?

On the day after the grant date
One year after the grant date
One year after the vesting date
On the day after the vesting date

6. What is a concentrated stock position?

A portfolio in which a dangerously large amount of your net worth is invested in just one stock
A rule (or position) imposed by a company that forces you to hold a certain percentage of your portfolio in the company's stock
Also known as a disqualifying disposition, it occurs when you sell stock without holding it long enough to get favorable treatment of capital gains
Leftover chicken soup that has become solid

7. Charitable remainder trusts (CRTs) are a mainstay of estate planning that can play a role in financial planning for company stock. Which is not a type of CRT?

Charitable remainder annuity trust (CRAT)
Charitable remainder unitrust (CRUT)
Grantor retained annuity trust (GRAT)
Net income with makeup charitable remainder unitrust (NIMCRUT)

8. How can a drop in your company's stock price be good for your ESPP participation?

You get a special tax credit for depreciation in ESPP shares you hold
The lower price means your standard ESPP paycheck deduction will purchase a greater number of shares, with the potential to appreciate if the stock price rises again later
Many companies will compensate you for the depreciation with a special bonus
Falling stock prices are never good for your ESPP participation

9. What is a Rule 10b5-1 trading plan?

A special tax-deferring retirement plan for people with stock options
A euphemism for an offshore shell company that avoids US taxation
An agreement between you and your company that lets you diversify your portfolio without violating the company's rules about minimum stock ownership
A pre-established program for trading your company's stock that can act as a defense against any charges of insider trading that relate to those trades

10. What is the tax basis for shares of company stock you gift to a relative?

The basis and withholding period are carried forward to the recipient
The basis is carried forward to the recipient but the holding period is not
The basis is not carried forward to the recipient, but the holding period is
Neither the basis nor the holding period is carried forward to the recipient

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