 Solution

Short one share at time zero and invest the one hundred pounds received in the bank asset. The initial net investment is zero. After one period, repurchasing the share leaves $100e^{0.2}-S_1$. Since $S_1\le 120$ and $e^{0.2}>1+0.2=1.2$, this payoff is strictly positive in both states. Hence this is an arbitrage opportunity.