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Jared Lazarus has just been named the new chief executive officer of BluBell Fitness Centers, Inc....

Jared Lazarus has just been named the new chief executive officer of BluBell Fitness Centers, Inc. In addition to an annual salary of $542,500, his three-year contract states that his compensation will include 37,750 at-the-money European call options on the company’s stock that expire in three years. The current stock price is $26 per share, and the standard deviation of the returns on the firm’s stock is 60 percent. The company does not pay a dividend. Treasury bills that mature in three years yield a continuously compounded interest rate of 4.2 percent. Assume that Mr. Lazarus’s annual salary payments occur at the end of the year and that these cash flows should be discounted at a rate of 14 percent.

  

Use the Black–Scholes model to calculate the value of the stock options. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

  Stock options $   

   

Determine the total value of the compensation package on the date the contract is signed. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

  Compensation package $   

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Expert Solution

NO INTERMEDIATE ROUNDING IS DONE. THANK YOU. A GOOD SUM FROM ROSS BOOK.

jeff jeffy answered 1 year ago
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