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A European option to sell PBA Ltd shares for $8.50 in exactly three months is priced at 16c. The next dividend of 40c will be

A European option to sell PBA Ltd shares for $8.50 in exactly three months is priced at 16c. The next dividend of 40c will be paid in six months, and PBAs shares are currently trading for $8.60.

i) If interest rates are 4% p.a. compounded quarterly, what is the no-arbitrage price of an option to buy PBAs shares for $8.50 in three months?

ii) What profit would be made if a put option was purchased at current prices and shares were priced at $8.13 in exactly three months time?

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