Consider a 6 month American call strike at $40 on a stock that pays two 50 cents dividends, going ex-div in 2 months and in 5 months time. The continuously compounded risk free rate is 9% pa.

(a) Should the option be exercised just prior to the 1st ex-div date? What about the 2nd ex-div date?

(b) How would your answer to (a) change if the strike price is $18? Is it necessary to check the inequality on both ex-div dates? Why or why not?