Hazel Received 20 NQOs (Each Option Gives Her the Right

question 48

Essay

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share)at the time she started working, when the stock price was $14 per share.Now that the share price is $20 per share, she exercises all of her options.If Hazel holds the shares for two years and sells them when the market price is $25, how much gain will Hazel recognize on the sale and how much tax will she pay assuming her marginal tax rate is 25 percent and her long-term capital gain tax rate is 15 percent?

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Definitions:

Psychological Experiment

A research method involving the manipulation of variables to study cause and effect relationships in behavior and mental processes.

Artificial Situation

An environment created for research or experimentation that may not accurately reflect natural conditions.

Cultural Animals

Highlights the notion that humans are inherently social beings shaped significantly by their cultural contexts and social environments.

Social Animals

Species that interact highly with other members of their species to such an extent that they have complex social structures and behaviors.