1. (Example 5-1) Randall Wallace is a vice president at a large communications f

Question

1. (Example 5-1) Randall Wallace is a vice president at a large communications firm. His compensation includes a salary of $500,000, a bonus of $100,000 and a stock option package that allows him to purchase 30,000 shares of the company’s stock at $50 per share. He can exercise the option anytime within a three year period that starts on the first of next month. The stock is now selling at $70.00 per share. If the current price holds until the first of the month, and Sam exercise his option, how much will he make this year?

Explanation / Answer

If he can purchase stock at 50 and sell at 70, then per stock he makes 20$ profit.

On 30,000 he makes 30,000×20=600,000

So total money he makes this year is 500,000+ 100,000 + 600,000 = 1200,000

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