Consider the following prices from a McDonald's Restaurant:Big Mac Sandwich$2.99Large Coke$1.39Large Fries$1.09 A McDonald's Big Mac Extra Value Meal® consists of a Big Mac Sandwich, a Large Coke, and one Large Fries. Assume that there is a competitive market for McDonald's food items and that McDonald's sells the Big Mac Extra Value Meal® for $4.79. Does an arbitrage opportunity exist and if so how would you exploit it? How much would you make on one extra value meal?a.No, no arbitrage opportunity exists.b.Yes, buy the Extra Value Meal® and then sell Big Mac, Coke, and Fries to make an arbitrage profit of $0.68.c.None of them.d.Yes, buy a Big Mac, Coke, and Fries then sell the Extra Value Meal® to make an arbitrage profit of $0.68.e.Yes, buy Big Mac, Coke, and Fries then sell the Extra Value Meal® to make an arbitrage profit of $1.09.

Arbitrage

When McDonald's and other fast food restaurants offer "value meal" items at surprisingly low prices, they are most likely using ________ pricing.A.break-evenB.target profitC.good-valueD.cost-plus

Suppose $1 = 10.5 pesos in New York and $1 = 9.6 pesos in Mexico City. If you had $10,000 using arbitrage, your profits would be: Question 5 Answer a. $937.50. b. 937 pesos. c. 9600 pesos. d. $790.

6. Baskets of almonds and pecans are bought and sold in a well-functioning market that is in equilibrium. One basket contains 20 almonds and 20 pecans while the second basket contains 10 almonds and 40 pecans. Both baskets are priced at $15. To preclude arbitrage, what is the price of a basket that contains 24 almonds and 16 pecans?  a.$20  b.$18  c.$16  d. It would not have a unique price  e. None of the above

Which of the following is inconsistent with the notion that there are no arbitrage opportunities?Question 1Select one:Investment strategy A is very safe. No matters what happens, it will generate a guaranteed payoff at time T of $100.In contrast, the future payoff to investment strategy B is highly uncertain -- it could be high or low. Nevertheless, strategy B has an expected payoff is $100. Since A and B both have expected payoffs of $100, the cost to enter both strategies today must also be identical.The future payoff to an investment strategy is known today with complete certainty. Therefore, the spot price to enter this strategy today will be such that whoever enters today will earn the riskfree rate of interest over the investment horizon.Investment strategy A always generates the same future payoff as investment strategy B. It follows that the current price to enter A must be identical to the current price to enter B.An investment product is structured such that its payoff at future time T is guaranteed to be $0. It follows that the current price to enter this strategy must also be $0.All of the above are consistent with the notion that there are no arbitrage opportunities.