Question

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 per share) from his employer. At the time he started working, the stock price was $11 per share. Now that the share price is $25 per share, he intends to exercise all of the options. Two years later Bad Brad sells the stock for $27 per share. What is Bad Brad's basis in his stock for purposes of calculating the gain or loss?a.$6,000.b.$9,000.c.$15,000.d.$16,200.

Answer 1

Answer:

Bad Brad's basis in his stock for purposes of calculating the gain or loss is c) $15,000

Explanation:

Hi, he has a option, which works kind of like and insurance policy, in which he has the right to buy that 30 shares at $10 each, for every NQO that he has, and since he has 20 NQOs, he can invest:

$Investment=20(NQOs)*\frac{30(Shares)}{1(NQOs)} \frac{10(dollars)}{1(Share)} =6,000(dollars)$

Plus, $15*600 shares=$9,000 which is the income recognized

Therefore, ignoring the cost of the options, the amount of money that Bad Brad has to consider in order to check if he had a loss or a gain is $6,000+$9,000=$15,000

Best of luck.