Chief executive officer of the first pacific trading company

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Reference no: EM131059536

1. William Hurt is the Chief Executive Officer of the First Pacific Trading Company (FPTC). His annual straight salary is $1 million. The current value of FPTC stock is $50 per share. Mr. Hurt has just been granted options on $1 million in shares of FPTC stock at the money by FPTC's board of directors. The risk-free rate is 6 percent. The options have a maturity of four years. The volatility of FPTC stock has been about 25 percent on an annual basis. Determine the value of Mr. Hurt's stock options.

2. Mr. Hurt has been quoted as saying that he doesn't want stock options. He has said he would be satisfied with straight pay of $1.25 million. The board of directors disagrees. Who is right?

Reference no: EM131059536

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