Jared Lazarus has just been named the new chief executive officer of BluBell Fitness Centers, Inc. In addition to an annual salary of $655,000, his three-year contract states that his compensation will include 17,750 at-the-money European call options on the companys stock that expire in three years. The current stock price is $62 per share and the standard deviation of the returns on the firms stock is 65 percent. The company does not pay a dividend. Treasury bills that mature in three years yield a continuously compounded interest rate of 7.8 percent. Assume that the annual salary payments occur at the end of the year and that these cash flows should be discounted at a rate of 10 percent.

Use the Black-Scholes model to calculate the value of the stock options. Determine the total value of the compensation package on the date the contract is signed