CEP - Certified Estimating Professional Exam
Question and Answers
A company employee calls you in the middle of processing her first exercise using
the company's participant portal for the option plan. She wants to know what "street
name" means and how long it will take for her stock certificate to be mailed to her.
What do you tell her? - ANS: Street name means that the certificates are
electronically issued and held in the name of the broker on behalf of the shareholder
A company grants stock options to an employee. After the options vest, he chooses
to exercise using a promissory note. Which of the following circumstances would
make the loan problematic? - ANS: He is a Section 16 insider
A plan prospectus is: - ANS: A summary of the plan terms, description of the
options' tax consequences, and other information to help employees decide whether
to exercise options.
A public company's equity plan authorizes the delivery of previously-owned shares of
stock as a payment method for option exercises. A director of the company takes
advantage of this payment method by tendering 200 shares to exercise 500 options.
What is her reporting responsibility in connection with the award? - ANS: She must
report both the exercise and the sale of the shares she used to effect the swap on a
Form 4
A publicly traded corporation grants its president the right to purchase 10,000 shares
of restricted stock at $15 per share. The grant is approved by the full board of
directors. On what form must the grant reported? - ANS: 16 officers must file Form 4
when their beneficial ownership of company securities changes. This includes an
award of restricted stock to a corporate insider
An executive receives 300 RSA shares and 150 RSU shares. At the time of the next
annual shareholder meeting, none of the shares have vested. How many votes does
the executive have available to vote at the shareholder meeting? - ANS: 300.
Because the stock is actually issued for restricted stock awards at the time of grant,
all shares are eligible for voting even before they vest. Restricted stock units are not
settled in issued stock until the units vest, so no voting rights attach to the units.
An exit memorandum to Section 16 officer who recently resigned: - ANS: may be
issued by the employer as a reminder to ensure compliance with certain non-exempt
issuer-related equity transactions subsequent to employment
,Broker -assisted cashless exercises can take what kind of forms: - ANS: Same-day
sales, sell-to-cover and promissory note
Companies are NOT eligible for corporate tax deductions in connection with: - ANS:
dividends paid on restricted stock for which a Section 83(b) election has been filed
During any 12-month period the aggregate sales price or amount of securities sold in
reliance on Rule 701 cannot exceed the greatest of: - ANS: $1 million, 15% of the
total assets of the issuer, 15% of the outstanding amount of the class securities
being offered and sold in reliance on Rule 701
Former officers and directors: - ANS: must report non-exempt transactions that
occur after they are no longer subject to Section 16 if those transactions occur within
six months of an opposite-way non-exempt transaction that occurred while they were
subject to Section 16
How and when do an insider's purchases under a qualified Section 423 ESPP need
to be reported to the SEC? - ANS: The purchases are not required to be reported,
but the insider's holdings should be updated to reflect the purchases on the next
form filed by the insider
In a sell-to-cover broker's transaction: - ANS: shares are typically registered
electronically in the name of the broker, and held by the broker in "street name" on
behalf of the new stockholder for ease of future trading.
In the case of ISOs, when the price of stock has fallen, it is possible to sell the stock
in the year of exercise and use the lower sales price to calculate the ordinary income
from the disqualifying disposition. Often an individual will want to maintain equity
ownership and will buy new shares shortly after selling the old ones. The individual
should be aware that: - ANS: the wash sale rules will result in the use of the lower
sales price not being recognized for tax purposes
On March 1 a CFO instructs her broker to sell 6,000 shares of her employer
company's stock on the open market after the board of directors approves the sale.
Based on the stock's trading price, she expects to receive $40,000 from the sale.
What does the CFO need to do? - ANS: The CFO must file a Form 144 no later than
March 1
Regulation D - ANS: exemption from registration under Section 3(b) of the 1933 Act
Regulation G - ANS: applies to the extension of credit by certain corporations in
connection with the purchase of shares of stock under an employee stock option
plan
, Regulation S - ANS: a clarification of a territorial approach to the registration
requirements of Section 5 of the 1933 Act
Rule 144 includes: - ANS: Minimum holding period of six months from purchase;
Resales of restricted securities must be reported on Form 144; Volume sales
limitations measured over a rolling three-month period; A Form 144 needs to be filed
with the listing stock exchange
Rule 16b-3 - ANS: lists matchable transactions under Section 16(b), includes
exemptions to reporting under Section 16(a), also is designed to facilitate the receipt
of stock-based compensation by reporting persons without incurring liability under
Section 16(b)
Shares held in a brokerage account can be voted - ANS: Only by the beneficial
owner
The CEO of a publicly traded company conducts a same-day sale exercise during an
open window period. The exercised options had been granted to her three years
earlier, immediately after the company's successful IPO. The shares under the grant
were covered by an S-8 registration statement. What is true of this transaction? -
ANS: The shares are subject to Rule 144
The Exchange Act rule that prohibits trading in securities by a person having
"material non-public" information is: - ANS: Rule 10b-5
The value of equity awards shown in the Summary Compensation table includes: -
ANS: both stock and option awards granted during the last three completed fiscal
years
What is false regarding voting rights? - ANS: RSUs will have have voting rights upon
vesting, RSUs will have have voting rights upon vesting
What is the effect of filing a Form 83(b) election? - ANS: It freezes the compensation
element of an award and accelerates taxation
What is the most likely outcome after an employee exercises an option to purchase
100 shares of stock through their Broker in a "sell to cover" transaction? - ANS: The
shares will be registered electronically in the name of the brokerage firm and held for
the benefit of the new stockholder
When do most companies consider stock option grants to become effective? - ANS:
Upon board approval
Question and Answers
A company employee calls you in the middle of processing her first exercise using
the company's participant portal for the option plan. She wants to know what "street
name" means and how long it will take for her stock certificate to be mailed to her.
What do you tell her? - ANS: Street name means that the certificates are
electronically issued and held in the name of the broker on behalf of the shareholder
A company grants stock options to an employee. After the options vest, he chooses
to exercise using a promissory note. Which of the following circumstances would
make the loan problematic? - ANS: He is a Section 16 insider
A plan prospectus is: - ANS: A summary of the plan terms, description of the
options' tax consequences, and other information to help employees decide whether
to exercise options.
A public company's equity plan authorizes the delivery of previously-owned shares of
stock as a payment method for option exercises. A director of the company takes
advantage of this payment method by tendering 200 shares to exercise 500 options.
What is her reporting responsibility in connection with the award? - ANS: She must
report both the exercise and the sale of the shares she used to effect the swap on a
Form 4
A publicly traded corporation grants its president the right to purchase 10,000 shares
of restricted stock at $15 per share. The grant is approved by the full board of
directors. On what form must the grant reported? - ANS: 16 officers must file Form 4
when their beneficial ownership of company securities changes. This includes an
award of restricted stock to a corporate insider
An executive receives 300 RSA shares and 150 RSU shares. At the time of the next
annual shareholder meeting, none of the shares have vested. How many votes does
the executive have available to vote at the shareholder meeting? - ANS: 300.
Because the stock is actually issued for restricted stock awards at the time of grant,
all shares are eligible for voting even before they vest. Restricted stock units are not
settled in issued stock until the units vest, so no voting rights attach to the units.
An exit memorandum to Section 16 officer who recently resigned: - ANS: may be
issued by the employer as a reminder to ensure compliance with certain non-exempt
issuer-related equity transactions subsequent to employment
,Broker -assisted cashless exercises can take what kind of forms: - ANS: Same-day
sales, sell-to-cover and promissory note
Companies are NOT eligible for corporate tax deductions in connection with: - ANS:
dividends paid on restricted stock for which a Section 83(b) election has been filed
During any 12-month period the aggregate sales price or amount of securities sold in
reliance on Rule 701 cannot exceed the greatest of: - ANS: $1 million, 15% of the
total assets of the issuer, 15% of the outstanding amount of the class securities
being offered and sold in reliance on Rule 701
Former officers and directors: - ANS: must report non-exempt transactions that
occur after they are no longer subject to Section 16 if those transactions occur within
six months of an opposite-way non-exempt transaction that occurred while they were
subject to Section 16
How and when do an insider's purchases under a qualified Section 423 ESPP need
to be reported to the SEC? - ANS: The purchases are not required to be reported,
but the insider's holdings should be updated to reflect the purchases on the next
form filed by the insider
In a sell-to-cover broker's transaction: - ANS: shares are typically registered
electronically in the name of the broker, and held by the broker in "street name" on
behalf of the new stockholder for ease of future trading.
In the case of ISOs, when the price of stock has fallen, it is possible to sell the stock
in the year of exercise and use the lower sales price to calculate the ordinary income
from the disqualifying disposition. Often an individual will want to maintain equity
ownership and will buy new shares shortly after selling the old ones. The individual
should be aware that: - ANS: the wash sale rules will result in the use of the lower
sales price not being recognized for tax purposes
On March 1 a CFO instructs her broker to sell 6,000 shares of her employer
company's stock on the open market after the board of directors approves the sale.
Based on the stock's trading price, she expects to receive $40,000 from the sale.
What does the CFO need to do? - ANS: The CFO must file a Form 144 no later than
March 1
Regulation D - ANS: exemption from registration under Section 3(b) of the 1933 Act
Regulation G - ANS: applies to the extension of credit by certain corporations in
connection with the purchase of shares of stock under an employee stock option
plan
, Regulation S - ANS: a clarification of a territorial approach to the registration
requirements of Section 5 of the 1933 Act
Rule 144 includes: - ANS: Minimum holding period of six months from purchase;
Resales of restricted securities must be reported on Form 144; Volume sales
limitations measured over a rolling three-month period; A Form 144 needs to be filed
with the listing stock exchange
Rule 16b-3 - ANS: lists matchable transactions under Section 16(b), includes
exemptions to reporting under Section 16(a), also is designed to facilitate the receipt
of stock-based compensation by reporting persons without incurring liability under
Section 16(b)
Shares held in a brokerage account can be voted - ANS: Only by the beneficial
owner
The CEO of a publicly traded company conducts a same-day sale exercise during an
open window period. The exercised options had been granted to her three years
earlier, immediately after the company's successful IPO. The shares under the grant
were covered by an S-8 registration statement. What is true of this transaction? -
ANS: The shares are subject to Rule 144
The Exchange Act rule that prohibits trading in securities by a person having
"material non-public" information is: - ANS: Rule 10b-5
The value of equity awards shown in the Summary Compensation table includes: -
ANS: both stock and option awards granted during the last three completed fiscal
years
What is false regarding voting rights? - ANS: RSUs will have have voting rights upon
vesting, RSUs will have have voting rights upon vesting
What is the effect of filing a Form 83(b) election? - ANS: It freezes the compensation
element of an award and accelerates taxation
What is the most likely outcome after an employee exercises an option to purchase
100 shares of stock through their Broker in a "sell to cover" transaction? - ANS: The
shares will be registered electronically in the name of the brokerage firm and held for
the benefit of the new stockholder
When do most companies consider stock option grants to become effective? - ANS:
Upon board approval
