Use the Table for the Question(s)below

question 23

Multiple Choice

Use the table for the question(s) below.
Consider the following prices from a McDonald's Restaurant:

-A McDonald's Big Mac value meal consists of a Big Mac, a large Coke and a large fries. Assume that there is a competitive market for McDonald's food items and that McDonald's sells the Big Mac value meal for $4.79. Does an arbitrage opportunity exists and, if so, how would you exploit it and how much would you make on one value meal?

• A)No, no arbitrage opportunity exists.
• B)Yes, buy a value meal and then sell the Big Mac, Coke and fries to make arbitrage profit of $0.38.
• C)Yes, buy a Big Mac, Coke and fries, then sell a value meal to make arbitrage profit of $1.09.
• D)Yes, buy a Big Mac, Coke and fries, then sell a value meal to make arbitrage profit of $0.68.

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Definitions:

Compounded Monthly

Entails the regular addition of interest to the principal balance of a loan or deposit every month, affecting overall returns or costs.

Semi-monthly Payments

Payments that are made twice a month, often on the 1st and 15th, typically in the context of salaries or loans.

Loan to Value Ratio

A financial term used by lenders to express the ratio of a loan to the value of an asset purchased.

Amortized

Relates to spreading payments over multiple periods to gradually eliminate a liability or loan, incorporating both principal and interest components.