On january 1, 2008. titania, inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company�s $10 par common stock at $25 per share. the options were exercisable within a 5-year period beginning january 1, 2010, by grantees still in the employ of the company, and expiring december 31, 2014. the service period for this award is 2 years. assume that the fair value option-pricing model determines total compensation expense to be $350,000. on april 1, 2009, 2,000 option shares were terminated when the employees resigned from the company. the market value of the common stock was $35 per share on this sale. on march 31, 2010, 12,000option shares were exercised when the market value of the common stock was $40 per share. prepare journal entries using the fair value method to record issuance of the stock options, termination of the stock options, exercise of the stock options, and changes to compensation expense, for the years ended december 31, 2008, 2009, and 2010.

3. saving two consumers, larry and jeff, have utility functions defined over the two periods of their lives: middle age (period zero) and retirement (period 1). they have the same income in period 0 of m dollars and they will not earn income in period 1. the interest rate they face is r. larry’s and jeff’s utility functions are as follow. = 0.5 + 0.5 and = 0.5 + 0.5 for each person is between zero and one and represents each consumer’s temporal discount econ 340: intermediate microeconomics. ben van kammen: purdue university. rate. a. write the budget constraint that applies to both jeff and larry in terms of consumption in each period and ), interest rate, and m. b. what is larry’s and what is jeff’s marginal rate of intertemporal substitution? c. what is the slope of the budget constraint? d. write each consumer’s condition for lifetime utility maximization. e. re-arrange the conditions from part (d) to solve for the ratio, . f. if > which consumer will save more of his middle age income? g. if > 1 1+ , in which period will larry consume more: = 0 or = 1?