Practice Test Geeks(CEP) Certified Equity Professional Practice Test
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Financial Modeling & Forecasting Flashcards

7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. A company grants 10,000 stock options with a Black-Scholes fair value of $8.50 each. Using straight-line attribution over a 4-year vesting schedule, what is the annual compensation expense recognized?

    Answer: $21,250

    Annual expense = (10,000 × $8.50) / 4 = $85,000 / 4 = $21,250 per year under straight-line attribution.

  2. Which input to the Black-Scholes model represents the annualized standard deviation of the continuously compounded returns on the underlying stock?

    Answer: Expected volatility

    Expected volatility is the annualized standard deviation of continuously compounded stock returns and is a key Black-Scholes input.

  3. Under ASC 718, when an employee forfeits unvested options before the service condition is met, the company should:

    Answer: Reverse previously recognized compensation expense for the forfeited awards

    ASC 718 requires that previously recognized compensation expense be reversed when awards are forfeited before vesting.

  4. A Monte Carlo simulation is preferred over a lattice model for valuing stock options when:

    Answer: The option has a market condition such as a TSR hurdle

    Monte Carlo simulation is best suited for awards with market conditions like TSR hurdles because it can model thousands of price paths simultaneously.

  5. In a diluted EPS calculation under the treasury stock method, which of the following correctly describes the denominator adjustment for in-the-money options?

    Answer: Add net new shares: options exercisable minus shares repurchased at average market price

    The treasury stock method adds the net incremental shares: proceeds from assumed exercise divided by average market price are subtracted from the option shares.

  6. Which forfeiture accounting policy did ASU 2016-09 permit companies to elect instead of estimating a forfeiture rate at grant date?

    Answer: Recognize forfeitures as they occur rather than estimating upfront

    ASU 2016-09 gave companies the option to account for forfeitures as they occur instead of estimating them at the grant date.

  7. A restricted stock unit (RSU) cliff vests after 3 years and the stock price at grant is $40. If the stock price on the vesting date is $55, what amount is recognized as compensation expense per share over the 3-year period?

    Answer: $40.00 — the grant-date fair value

    RSU compensation expense equals the grant-date fair value ($40) recognized ratably over the service period, regardless of subsequent price changes.