2. An executive at a large technology firm has been awarded 12,500 European call options on a non-dividend paying stock which is currently trading at $25 per share. The options are at-the- money, and will expire in 3 years. The standard deviation of the returns on the stock is 35%. Treasury bonds maturing in 3 years currently yield a continuously compounded interest rate of 5%. a) Use the Black-Scholes model to calculate the value of the individual stock options and the total award. b) The executive must choose between the awarded options and a bonus of $200,000 paid immediately (i.e., today). If he is risk-neutral, which alternative would the executive choose the stock options or the bonus? -

2. An executive at a large technology firm has been awarded 12,500 European call options on a non-dividend paying stock which is currently trading at $25 per share. The options are at-themoney, and will expire in 3 years. The standard deviation of the returns on the stock is 35%. Treasury bonds maturing in 3 years currently yield a continuously compounded interest rate of 5% a) Use the Black-Scholes model to calculate the value of the individual stock options and the total award. b) The executive must choose between the awarded options and a bonus of $200,000 paid immediately (i.e., today). If he is risk-neutral, which alternative would the executive choose - the stock options or the bonus