Gary Levin is the CEO of star Trading Company. The board of directors has just granted Mr. Levin 20,000 at-the-money European call options on the companys stock., which is currently trading at $50 per share. The stock pays no dividends. The options will expire in 4 years, and the annual standard deviation of the returns on the stock is 55%. Treasury bills that mature in 4 years currently yield a continuously compounded annual interest rate of 6%.

a) Use the Black-Scholes model to calculate the value of the stock options.

b. You are Mr. Levins financial advisor. He must choose between the previously mentioned stock option package and an immediate $450,000 bonus. If he is risk-neutral, which would you recommend? (2 marks)

c) How would your answer to (b) change if Mr. Levin were risk-averse and he could not sell the options prior to expiration? (2 mark)