Question: There are six months put and call options with a strike price of $270 available in the market on Apple shares (common stock). The call

There are six months put and call options with a strike price of $270 available in the market on Apple shares (common stock). The call option has a price of $20.11 and the put option a price of $32.45. Apple shares are currently trading in the market at $260 and the shares will be paying a dividend of $8.13 in exactly four months' time. The continuously compounded risk-free rate of interest for the four and six month periods is 5 per cent per year.

Detail any arbitrage that you might be able to undertake given the above prices and explain what would happen to the arbitrage strategy if the shares of Apple were below the strike price at the expiration of the options.

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