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    Pricing in 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 McDonalds Big Mac value meal consists of a Big Mac sandwich, large Coke, and a large fry. Assuming that there is a competitive market for McDonalds 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.

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    Solution Summary

    Solution depicts the steps to find out the price of a Big Mac value meal in the given case.