Question

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 was6 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 for20 per share. What is the amount of Maren's bargain element?

1) $0
2) $700
3) $900
4) $1,500
5) None of these

Answer 1

The amount of Maren's bargain element is $700.

Step-by-step explanation:

The bargain element is the difference between the exercise price of the stock options and the fair market value of the stock at the time of exercise. In this case, Maren received 10 nonqualified options (NQOs) that gave her the right to purchase 10 shares of stock for $8 per share. When she exercised all of her options, the stock price was $15 per share, resulting in a bargain element of $7 per share.

To calculate the total bargain element, we multiply the number of options (10) by the difference in stock price ($15 - $8 = $7) and obtain $70. Therefore, the correct answer is $700 (option 2).