2. Answer the following questions: (a) Walter Maxim, the CEO of Digital Storage Devices has been granted options on 300,000 shares. The stock is currently trading at $27 a share and the options are at the money. The volatility of the stock has been about .15 on an annual basis over the last several years. The options mature in 5 years, become exercisable in 3 years, and the risk free rate is 4%. What is the value of Mr. Maxim's options? Why would the company pay the executive in options as opposed to salary? (35 Marks) (b) If Mr. Maxim earned $500,000 in regular annual salary why might he prefer to have $1,500,000 in straight salary versus salary and options? (25 Marks) (c) There is a European call option on a stock that expires in two months. The stock price is $73, and the standard deviation of the stock returns is 70%. The option has a strike price of $75, and the risk free interest rate is 5% per annual. What is the price of the call option today using one-month step? (30 Marks) (d) Walter Maxim has been advised by his CFO to lease rather than purchase the vehicles they need for product transportation. Analyzing the advantages and disadvantages of lease financing. (10 Marks) 2. Answer the following questions: (a) Walter Maxim, the CEO of Digital Storage Devices has been granted options on 300,000 shares. The stock is currently trading at $27 a share and the options are at the money. The volatility of the stock has been about .15 on an annual basis over the last several years. The options mature in 5 years, become exercisable in 3 years, and the risk free rate is 4%. What is the value of Mr. Maxim's options? Why would the company pay the executive in options as opposed to salary? (35 Marks) (b) If Mr. Maxim earned $500,000 in regular annual salary why might he prefer to have $1,500,000 in straight salary versus salary and options? (25 Marks) (c) There is a European call option on a stock that expires in two months. The stock price is $73, and the standard deviation of the stock returns is 70%. The option has a strike price of $75, and the risk free interest rate is 5% per annual. What is the price of the call option today using one-month step? (30 Marks) (d) Walter Maxim has been advised by his CFO to lease rather than purchase the vehicles they need for product transportation. Analyzing the advantages and disadvantages of lease financing. (10 Marks)