Past exam of the martingales and financial mathematics course of the University of Oxford / 2010 / B / 4 / a

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.