a. Since year 2000 STI share price had been trading below $5/share with 10-year options. Based on the Option Pricing Model and with an estimated growth of 5%, the future estimated stock price would be $8.14 [5*(1.05)^10], with an estimated future gain of $3.14 [$8.14-$5] discounted at 5% would give a present value of $1.93 [(5*(1.05)^10-5)/ (1.05)^10]. The economic value for 1000 shares it would be $1930.43 [$1.930434*1000 shares]. Stock prices are affected by market cycles, rumors, investors taste or mood. The factors considered in estimating economic value of option grant is the share price, term of the option, growth rate. . Option grant is likely to affect behaviour in a positive way. Since in future one would be able to exercise the option hence would try to increase the shareholder value and the share price. But in the case of STI it is likely to affect behaviour in a negative way because the stock price was stuck far below its historical highs and most of the options that had been granted were 'underwater'. This might motivate behaviour that is not in the shareholders' best interest such as trying to sell the company to cash for the large numbers of options that have been granted.