Suppose you are interested in investigating the option price efficiency of Altria Group, Inc. (MO) listed options. You look at options expiring in January of 2020, which is close enough to one quarter for your purposes. You observe the following prices listed for the options (below). Are the options efficiently priced, how do you know (2 pts)? Hint look at a box spread with strikes at $60 and $70. If the options are not priced correctly, ignoring trading costs, what is the arbitrage profits that could be made from the trade? (2 pts) The risk-free rate is 1.5%

Strike Last Price

60.00 4.90

62.50 3.47

65.00 2.35

67.50 1.50

70.00 0.99

Puts

60.00 2.20

62.50 3.18

65.00 5.20

67.50 8.05

70.00 9.82