William is an assistant vice president at ACME Corporation. William, along with several other assistant vice presidents of the company were granted 1000 shares of stock options last year. The market value of the stock at the time of the grant was $25 per share. Over the past year, the stock has climbed to $50 per share. Based on the terms of the plan, William can exercise 25% of his options, or 250 shares. The options will expire in ten years from the date of the grant William's colleague, Melinda, is also an assistant vice president at ACME Corporation and she was granted options for 1000 shares of stock in the company. She tells William that he should exercise his options for 250 shares because even if he does not do so, he will have to pay income tax on the increase in the share price. William knows you are an expert on stock options, so he asks you if Melinda is right. You tell William he will not have to pay income tax unless he exercises the options and sells the shares, since he will not have constructively received the shares if does not exercise the options he must exercise the option on 25% of the shares or he will lose the right at the end of the year income taxes have already been withheld from his compensation because Internal Revenue Code section 422 requires the employer to withhold taxes even if he does not exercise the options O he should exercise and sell the shares so he will have enough money to pay the income taxes on the gain