Question

which of the following is true regarding stock options? group of answer choices the bargain element on a nonqualified option is taxed to employees at capital gain rates. income recognized on the exercise date is greater for incentive stock options than nonqualified options. a loss is realized when stock options lapse. there is typically no tax effect on the grant date.

Answer 1

The correct statement is that there is typically no tax effect on the grant date of stock options. Stock represents ownership in a firm, dividends are direct payments to shareholders, and capital gains are profits from selling assets like stocks at a higher price than they were bought.

Step-by-step explanation:

The question asked about the taxation and effects related to stock options, and the correct statement among the provided choices is that 'there is typically no tax effect on the grant date.' When stock options are granted, the employee does not usually incur any immediate tax liability. Instead, the taxation aspects of stocks options, such as nonqualified options (NQOs) and incentive stock options (ISOs), come into play either when the options are exercised or when the acquired stock is sold.

A share of stock represents a unit of ownership in a company. When firms issue stock for the first time through an initial public offering (IPO), they receive money from investors; subsequent trades of those shares in the stock market do not result in direct financial benefit to the company. Dividends are direct payments made by a firm to its shareholders, and a capital gain is the increase in the value of an asset, like stock, between when it is purchased and when it is sold.