00:01
Here, two questions are provided to us.
00:03
First, we need to calculate for year 2 taxable income.
00:07
So, for year 2 taxable income, the formula is market value at exercise minus option price multiplied by number of shares.
00:24
So, it will be $40 minus $38 multiplied by 500.
00:30
When we sort this out, we got $1000.
00:35
Now, for the year 4, the second thing is year 4 taxable income will be selling price minus market value at exercise multiplied by number of shares.
00:50
So, it will be $845 minus $40 multiplied by 500.
00:59
So, it will become $4 ,250.
01:06
Now, the type of gain reported in both instances in the capital gains...