Walter Maxim,the CEO of Digital Storage Devices Has Been Granted

question 37

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 options 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 he prefer to have $1,500,000 in straight salary versus salary and options?

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