Maren Received 10 NQOs (Each Option Gives Her the Right

question 40

Multiple Choice

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. How much gain will Maren recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?

• A) $0 gain and $0 tax.
• B) $500 gain and $75 tax.
• C) $500 gain and $175 tax.
• D) $1,200 gain and $180 tax.

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Definitions:

IPS

In-Plane Switching, a technology for LCD displays that offers wider viewing angles and better color accuracy, or Intrusion Prevention System, designed to detect and prevent network breaches.

DNS

Domain Name System, a hierarchical and decentralized naming system for computers, services, or any resource connected to the internet or a private network that translates domain names to IP addresses.

IP Address

A distinct sequence of numbers divided by dots, which serves to identify every device that communicates across a network using Internet Protocol.