Essay
Walter Maxim, the CEO of Digital Storage Devices has been granted options on 300,000 shares. The stock is currently trading at $27 a share and the options are at the money. The volatility of the stock has been about.15 on an annual basis over the last several years. The option mature in 5 years, become exercisable in 3 years, and the risk free rate is 4%.
If Mr. Maxim earned $500,000 in regular annual salary why might why might he prefer to have $1,500,000 in straight salary versus salary and options?
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