The Kelly Company and the Green Company are identical in every respect except that the Kelly Company is not financially levered, whereas the Green Company has $2 million in 12 percent bonds outstanding. There are no taxes, and capital markets are assumed to be perfect. The earnings of both companies are not expected to grow, and all earnings are paid out to shareholders in the form of dividends. The valuation of the two firms is shown as follows:

                                                                                                            KELLY                       GREEN

Net operating income                                                                  $600,000                     600,000

Interest on debt                                                                                   -                            240,000

Earnings available to common shareholders                             $600,000                     360,000

Equity capitalization rate                                                                    0.15                        0.16

Market value of stock                                                               $4,000,000                $2,250,000

Market value of debt                                                                          -                       2,000,000

Total value of firm                                                                    $4,000,000                $4,250,000

Implied overall capitalization rate                                                 15%                       14.12%

Debt-to-equity ratio                                                                            0                           0.89

Required: You own $112,500 worth of Green stock. Show the process and the amount by which you could reduce your outlay through the use of arbitrage. When will this arbitrage process cease