Jared Lazarus has just been named the new chief executive officer of BluBell Fitness Centers, Inc. In addition to an annual salary of $475,000, his three-year contract states that his compensation will include 20,000 at-the-money European call options on the company's stock that expire in three years. The current stock price is $41 per share, and the standard deviation of the returns on the firm's stock is 69 percent.

The company does not pay a dividend. Treasury bills that mature in three years yield a continuously compounded interest rate of 5 percent. Assume that Mr. Lazarus's annual salary payments occur at the end of the year and that these cash flows should be discounted at a rate of 9 percent. Using the Black-Scholes model to calculate the value of the stock options, determine the total value of the compensation package on the date the contract is signed.