Choose wisely. There is only one correct answer to each question.
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1.
What is a disadvantage of owning a lot of your company's stock?
You're putting both your present and your future financial security in your employer's hands. Investing in your company can be highly profitable. However, by over-concentrating in your company's stock, you're tying your current and future financial well-being to your employer's well-being. That's a risk.
2.
Where are all the places your company's stock might appear, if its shares are publicly traded?
In your 401(k) plan, in the form of stock options, and in your mutual funds. You may have even more exposure to your company's stock than you think if your mutual funds own your company's stock, too.
3.
If you decide to sell some of your company stock but will owe significant capital gains taxes on the growth of those shares, what might be the least painful thing to do?
Sell the shares over a series of years to spread out the tax hit. This is the happy medium for most investors. You're managing your taxes and your risk at the same time.
4.
If you find that you're over-invested in your company and your goal is more than five years away, what should you do?
Objectively analyze your company's stock as you would any other investment and determine whether or not you should scale back your position. You may find that, given your goals and risk tolerance, you can continue to overweight your company's stock if it's a good investment. Don't assume that you can just do nothing, though. Treat company stock like any other investment.
5.
As part of the 1997 Taxpayer Relief Act, employers can no longer direct more than _______ of their employees' retirement plan contributions into company stock.
10%. The Taxpayer Relief Act aimed to limit employers' use of company stock for retirement plans.
