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Question 4: What is the (risk-neutral) expected life for the employee stock option in Example 16.2? What is the value of the option obtained by using this expected life in Black-Scholes- Merton? Question 5: (a) Hedge funds earn a management fee plus an incentive fee that is a percentage of the profits, if any, that they generate (see Business Snapshot 1.3). How is a fund manager motivated to behave with this type of compensation package? (b) "Granting options to an executive gives the executive the same type of compensation package as a hedge fund manager and motivates him or her to behave in the same way as a hedge fund manager" Discuss this statement Question 1: What are the main differences between a typical employee stock option and an American call option traded on an exchange or in the over-the-counter market? Question 2: Explain why employee stock options on a non-dividend-paying stock are frequently exercised before the end of their lives whereas an exchange-traded call option on such a stock is never exercised early. Question 3: On May 31 a company's stock price is $70. One million shares are outstanding. An executive exercises 100,000 stock options with a strike price of $50. What is the imnart of this on the stock price