(NO EXCEL) OPTION EXPIRES IN TWO MONTHS. Suppose you have two-month European Call/Put, options both At-The-Money options on stock AAA. Both options sell for $8.00. Stock AAA current price is $200. A dividend of $2 per share is expected one month from now. (Assume 5% IR if applicable) (This is the second time I am posting this question, need it to study. So please answer the question to the best of your ability, everything needed to answer the question has been provided, as I have not been provided with any more information than this.

1) Does an arbitrage opportunity exist regarding the securities market for T-bills, or AAA stock/options Explain.

2) Now completely specify a set of FOUR arbitrage trades including actions taken now and at the end of expiration.

Now ---------------------and---------------------- At Exp.

a)

b)

c)

d)

3) Compute the profit for each of the four trades option expiration for the following terminal prices: AAA: $190 and $210(Using the above trades in Q1)

a)

b)

c)

d)