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Test Your Knowledge: Stock Appreciation Rights Quiz
What do you know about stock appreciation rights? 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 does SAR stand for?
Stock appreciation right
Stock appreciation recipient
Stock appreciation reporting
Stock appreciation rules
 
 
2. What's the appreciation?
The increase in value of a set number of company shares from your date of hire
The increase in value of a set number of company shares from the vesting date
The increase in value of a set number of company shares from the grant date
The increase in value of a set number of company shares from the exercise date
 
 
3. When you exercise stock-settled SARs, your gain (before taxes) is an amount of shares equal to:
The number of granted shares
The value of the shares at exercise divided by the number of shares granted
The spread between the market prices at grant and exercise for the number of shares granted, divided by the current market price
The spread at exercise divided by the market price at grant
 
 
4. How do you exercise a stock appreciation right?
You notify your company according to the procedures in your stock plan or grant agreement
You pay the exercise price in cash
You don't exercise SARs: you receive the shares automatically after satisfying the vesting period
Your company pays the exercise price
 
 
5. The taxation of stock appreciation rights is most similar to what other type of stock grant?
Nonqualified stock options
Incentive stock options
Restricted stock units with deferred delivery of shares
Restricted stock with a Section 83(b) election to be taxed at grant
 
 
6. Which event triggers tax withholding and taxable income?
Vesting
Grant
Exercise
Sale
 
 
7. What federal taxes are withheld at exercise?
Ordinary income tax, Social Security, and Medicare
Capital gains tax, Social Security, and Medicare
No taxes are withheld at exercise
Ordinary income tax and capital gains tax
 
 
8. How long must you hold SAR stock after exercise to have the sale proceeds taxed favorably as long-term capital gain?
One year
Two years
Six months
60 days
 
 
9. On your tax return, how do you report capital gain from a sale of SAR stock?
You file Schedule A of Form 1040
You file Schedule D of Form 1040, but only if you exercised SARs and held the shares
You file Schedule D of Form 1040, using your W-2 income for the exercise as your tax basis
You don't need to report capital gain from a sale of SAR stock
 
 
10. Why do companies like stock appreciation rights?
They don't have to expense SARs on their financial statements
SARs are less dilutive than stock options and use fewer shares
The Black-Scholes value of SARs is less than that of stock options, lowering the accounting expense
SARs receive variable accounting
 
 
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