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Homework answers / question archive / Consider the following prices from a McDonald's Restaurant: Big Mac Sandwich - $2

Consider the following prices from a McDonald's Restaurant: Big Mac Sandwich - $2

Finance

Consider the following prices from a McDonald's Restaurant:

Big Mac Sandwich - $2.99
Large Coke - $1.39
Large Fry - $1.09

A McDonald's Big Mac Extra Value Meal® consists of a Big Mac Sandwich, Large Coke, and a Large Fry. 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 exist and if so how would you exploit it? How much would you make on one extra value meal?

  a.

Yes, buy a Big Mac, Coke, and Fries then sell the Extra Value Meal® to make an arbitrage profit of $0.68.
  b.

Yes, buy the Big Mac Extra Value Meal® and then sell Big Mac, Coke, and Fries to make arbitrage profit of $0.68.
  c.

None of the answers are correct.
  d.

No, no arbitrage opportunity exists.
  e.

Yes, buy Big Mac, Coke, and Fries then sell the Extra Value Meal® to make an arbitrage profit of $1.09.

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