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    Insuring absence of an arbitrage opportunity

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    Consider the following prices from a McDonalds Restaurant.

    Big mac sandwich $2.99
    Large coke $1.39
    Large Fry $1.09

    A McDonald's Big Mac value meal consists of a Big Mac sandwich. Large Coke and a Large Fry. Assuming that there is a competitive market for McDonald's food items, at what price must a Big Mac value meal sell to insure the absence of an arbitrage opportunity and uphold the law of one price

    1. $4.08
    2. $4.38
    3. $5.47
    4. $5.77

    © BrainMass Inc. brainmass.com October 10, 2019, 6:12 am ad1c9bdddf
    https://brainmass.com/business/arbitrage-pricing-theory/insuring-absence-arbitrage-opportunity-533950

    Solution Summary

    This solution helps in estimating price for a Big Mac value meal sell to insure the absence of an arbitrage opportunity and uphold the law of one price.

    $2.19