Using the figures in the table below and the BSM model, a call option should be priced at $16.25. Based on this information, answer the following questions:

Option Pricing Information LO6 Share price $50 Strike price $50 Time to Expiration (Maturity) 5 Years Volatility 25%
Risk- free interest rate 5.00%
Dividends $0

a. Suppose you were offered $100,000 of stock option compensation. If the options were valued at their market price:
i. How many options would you get?
ii. Explain how you could lock in, immediately, the minimum value of these options?
iii. After three years, if the stock price rises by 10 percent, the ESO price falls from $16.25 to $12.94. How is this possible? If you exercised this option, how much would you receive?

b. Suppose that in five years (i.e., at maturity) the share price rose to $130. If you exercised your options:
i. How much, if anything, will you have to pay if you wanted to own the shares?
ii. How much, if anything, will you receive if you cashed out?
iii. How, if at all, would your answers to Question 8b(ii) change if the share price rose to $130 in three years, and you exercised your options (i.e., exercised them in three years rather than five years)?