How is the bargain element for a stock option calculated?
A) The difference between the market price on the exercise date and the market price on the date of grant.
B) The difference between the strike price and the market price on the date of grant.
C) The difference between the market price on the exercise date and the strike price.
D) The difference between the market price on the sale date and the strike price.

Question

Quizplus · Accepted Answer

The bargain element for a stock option is calculated by taking the difference between the market price on the exercise date and the strike price. This represents the amount of gain that the option holder receives from purchasing the stock at a lower price (the strike price) and selling it at a higher price (the market price on the exercise date). Choice A is incorrect because it compares the market price on the exercise date with the market price on the date of grant, which does not accurately reflect the value of the option. Choice B is incorrect because it only considers the difference between the strike price and the market price on the date of grant, which does not account for any changes in the market price over time. Choice D is incorrect because it uses the market price on the sale date, which is not relevant for calculating the bargain element at the time of exercise.

How Is the Bargain Element for a Stock Option Calculated