Question: ADP Rules and 401(k)

Which of the following statements concerning differences between qualified and nonqualified stock options is correct?

1. The employer can deduct the cost of both when they are granted.
2. The employer can deduct the cost of qualified stock options but not nonqualified stock options.
3. The employer can deduct the cost of qualified stock options, but the cost of nonqualified stock options cannot be deducted until exercised.
4. The employer cannot deduct the cost of qualified stock options but can deduct the cost of nonqualified options when they are exercised.