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 when 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.The gain realized is $500 (100 shares × $20) less basis (100 shares × $15 exercise price) .The tax is calculated as follows: $500 × 15% (preferential rate) .

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