#1
Which of the following is a common form of employee stock compensation?
Stock options
ExplanationStock options are a common form of employee stock compensation allowing employees to buy company stock at a predetermined price.
#2
What is the primary purpose of an Employee Stock Purchase Plan (ESPP)?
To allow employees to purchase company stock at a discount.
ExplanationESPPs enable employees to purchase company stock at a discounted price, often through payroll deductions.
#3
Which regulatory body in the United States oversees the accounting and reporting standards for employee stock compensation?
Financial Accounting Standards Board (FASB)
ExplanationThe Financial Accounting Standards Board (FASB) sets the accounting and reporting standards for employee stock compensation in the United States.
#4
Which of the following factors may influence the value of employee stock options?
Market demand for the company's products or services
ExplanationThe value of employee stock options can be influenced by various factors, including market demand for the company's products or services.
#5
What is the purpose of a stock option plan?
To grant employees the right to buy company stock at a predetermined price.
ExplanationStock option plans grant employees the right to purchase company stock at a predetermined price, often as part of their compensation package.
#6
What is the primary advantage of offering stock options to employees?
Increased employee retention
ExplanationStock options can increase employee retention by providing them with a stake in the company's future.
#7
What is the vesting period in the context of employee stock options?
The period during which employees are eligible to receive stock options
ExplanationThe vesting period is the time frame during which employees become eligible to receive stock options as part of their compensation package.
#8
Which of the following statements best describes the concept of stock dilution?
The reduction in the ownership percentage of existing shareholders due to the issuance of additional shares.
ExplanationStock dilution refers to the reduction in the ownership percentage of existing shareholders resulting from the issuance of additional shares.
#9
In an Initial Public Offering (IPO), how might employee stock compensation be affected?
Employees may be subject to a lock-up period before selling their company stock.
ExplanationDuring an IPO, employees might face a lock-up period during which they are restricted from selling their company stock to prevent massive sell-offs.
#10
What is the difference between stock options and stock grants?
Stock options allow employees to buy company stock at a predetermined price, while stock grants give employees company shares outright.
ExplanationStock options grant the right to buy company stock at a fixed price, while stock grants give employees actual company shares without the need to purchase.
#11
Which of the following is NOT a potential risk associated with employee stock compensation plans?
Guaranteed returns
ExplanationEmployee stock compensation plans do not guarantee returns and are subject to market fluctuations and other risks.
#12
How are stock appreciation rights (SARs) different from stock options?
SARs give employees the right to receive the increase in the company's stock price over a specified period.
ExplanationSARs grant employees the right to receive the increase in the company's stock price over a specific period, whereas stock options allow employees to buy stock at a predetermined price.
#13
What is the purpose of using restricted stock units (RSUs) as part of employee compensation?
To offer employees ownership of company shares, with restrictions on transferability and vesting requirements.
ExplanationRSUs grant employees ownership of company shares, subject to restrictions on transferability and vesting requirements, as part of their compensation.
#14
How do stock options differ from restricted stock units (RSUs) in terms of taxation?
Stock options are taxed upon exercise, while RSUs are taxed upon vesting.
ExplanationStock options are taxed when exercised, based on the difference between the market price and the exercise price, while RSUs are taxed when they vest, based on their fair market value.
#15
What is the purpose of a cliff vesting schedule in stock compensation plans?
To require employees to wait for a specific period before any stock options vest.
ExplanationA cliff vesting schedule mandates that employees must wait for a specific period before any portion of their stock options becomes available.
#16
What is the purpose of using a performance-based vesting condition in employee stock compensation?
To ensure that employees meet certain performance targets before their stock options vest.
ExplanationPerformance-based vesting conditions are used to ensure that employees meet predefined performance targets before their stock options become exercisable.
#17
What is the difference between ISOs (Incentive Stock Options) and NSOs (Non-Qualified Stock Options)?
ISOs have preferential tax treatment, while NSOs do not.
ExplanationISOs offer preferential tax treatment, including potential capital gains tax treatment, while NSOs do not have the same tax advantages.