Deck 3: Financial Decision Making and the Law of One Price

Question 1

Suppose you have $500 today and the risk-free interest rate (r_f)is 5%.The equivalent value in one year is closest to:

A)$475
B)$476
C)$500
D)$525

Answer 1

$525

Question 2

Which of the following statements regarding the valuing of costs and benefits is NOT correct?

A)The first step in evaluating a project is to identify its costs and benefits.
B)In the absence of competitive markets,we can use one-sided prices to determine exact cash values.
C)Competitive market prices allow us to calculate the value of a decision without worrying about the tastes or opinions of the decision maker.
D)Because competitive markets exist for most commodities and financial assets,we can use them to determine cash values and evaluate decisions in most situations.

Answer 2

In the absence of competitive markets,we can use one-sided prices to determine exact cash values.

Question 3

Assuming you currently have 10,000 Bbls of WTI crude,the added benefits to you if you were to sell the 10,000 Bbls of WTI crude and use the proceeds to purchase and refine ANS crude is closest to:

A)$730,600
B)$770,000
C)$40,800
D)$43,308

Answer 3

$43,308

Question 4

A mining company is offering to trade you 7250 tons of low-grade copper ore for 5000 tons of high-grade copper ore.Assuming you currently have 5000 tons of high-grade ore,what should you do?

Question 5

Recycle America Inc.has the opportunity to trade 8000 pounds of plastic pellets made from recycled soda bottles for 5000 pounds of aluminum cans.If the current market price of scrap aluminum is $0.83 per pound and the current market price for plastic pellets is $0.57 per pound,then the added benefit (cost)of making this trade is:

A)($410)
B)$410
C)($780)
D)$780

Question 6

A project that you are considering today is expected to provide benefits worth $168,000 in one year.If the risk-free rate of interest (r_f)is 4.5%,then the value of the benefits of this project today are closest to:

A)$160,440
B)$160,766
C)$168,000
D)$175,560

Question 7

If the risk-free rate of interest (r_f)is 6%,then you should be indifferent between receiving $250 in one year or

A)$235.85 today.
B)$250.00 today.
C)$265.00 today.
D)None of the above

Question 8

Which of the following statements is INCORRECT?

A)In general,money today is worth more than money in one year.
B)We define the risk-free interest rate,r_f for a given period as the interest rate at which money can be borrowed or lent without risk over that period.
C)We refer to (1 - r_f)as the interest rate factor for risk-free cash flows.
D)For most financial decisions,costs and benefits occur at different points in time.

Question 9

A project you are considering is expected to provide benefits worth $225,000 in one year.If the risk-free rate of interest (r_f)is 8%,then the value of the benefits of this project today are closest to:

A)$190,333
B)$208,333
C)$225,000
D)$243,000

Question 10

A company that manufactures copper piping is offering to trade you 5925 tons of low-grade copper ore for 4000 tons of high-grade copper ore.Assuming you currently have 4000 tons of high-grade ore,what are the total benefits and added benefits of taking the trade?

Question 11

Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS)crude oil for 10,000 Bbls of West Texas Intermediate (WTI)crude oil.Assuming you currently have 10,000 Bbls of WTI crude,the added benefit (cost)to you if you take the trade is closest to:

A)($1400)
B)$1400
C)($3908)
D)$3908

Question 12

Assuming you just purchased 10,000 Bbls of WTI crude at the current market price,the added benefit (cost)to you if you were to refine this crude oil and sell the unleaded gasoline is closest to:

A)$730,600
B)$39,400
C)$770,000
D)-$39,400

Question 13

If the risk-free rate of interest (r_f)is 6%,then you should be indifferent between receiving $250 today or

A)$235.85 in one year.
B)$250.00 in one year.
C)$265.00 in one year.
D)None of the above

Question 14

Due to a pre-existing contract,Recycle America Inc.has the opportunity to acquire 10,000 pounds of scrap aluminum and 2500 pounds of scrap lead for $10,750.If the current market price for scrap aluminum is $0.83 per pound and the current market price for lead is $1.06 per pound,then the added benefit (cost)to you if you acquire this metal is:

A)($200)
B)$200
C)($1925)
D)$1925

Question 15

Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS)crude oil for 10,000 Bbls of West Texas Intermediate (WTI)crude oil.Assuming you just purchased 10,000 Bbls of WTI crude at the current market price,the added benefit (cost)to you if you take the trade is closest to:

A)$730,600
B)$771,400
C)$40,800
D)$43,308

Question 16

By evaluating cost and benefits using competitive market prices,we can determine whether a decision will make the firm and its investors wealthier.This central concept is called:

A)the Law of One Price.
B)the Present Value.
C)the Valuation Principle.
D)the Internal Rate of Return.

Question 17

Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS)crude oil for 10,000 Bbls of West Texas Intermediate (WTI)crude oil.Assuming you currently have 10,000 Bbls of WTI crude,what should you do?

A)Sell 10,000 Bbls WTI crude on the market and use the proceeds to purchase and refine ANS crude.
B)Do nothing,refine the 10,000 Bbls of WTI crude.
C)Trade the 10,000 Bbls WTI crude with the other refiner and refine the 10,150 Bbls of ANS crude.
D)Trade the 10,000 Bbls WTI crude with the other refiner and then sell the 10,150 Bbls of ANS crude.

Question 18

Assuming you currently have 10,000 Bbls of WTI crude,the added benefit (cost)to you if you were to sell the 10,000 Bbls of WTI crude and use the proceeds to purchase and refine ANS crude is closest to:

A)($1400)
B)$1400
C)($3908)
D)$3908

Question 19

If the risk-free rate of interest (r_f)is 3.5%,then you should be indifferent between receiving $1000 in one-year or:

A)$965.00 today.
B)$966.18 today.
C)$1000.00 today.
D)$1035.00 today.

Question 20

Suppose you have $1000 today and the risk-free rate of interest (r_f)is 3.5%.The equivalent value in one year is closest to:

A)$965.00 today.
B)$966.18 today.
C)$1000.00 today.
D)$1035.00 today.

Question 21

If the interest rate is 7%,the alternative with the lowest NPV is:

A)Alternative #1 with an NPV of approximately $350,000
B)Alternative #2 with an NPV of approximately $370,561
C)Alternative #3 with an NPV of approximately $357,196
D)Alternative #2 with an NPV of approximately $380,561

Question 22

If we use future value rather than present value to decide whether to make an investment:

A)we will make a bad decision,since the future value will always be higher if the discount rate is positive.
B)we will make a bad decision,since the future value will always be lower if the discount rate is positive.
C)we will make the same decision using either future value or present value.
D)There is not enough information given to answer the question.

Question 23

If the discount rate is 15%,the alternative with the lowest NPV is:

A)#1 with an NPV of approximately $350,000
B)#2 with an NPV of approximately $341,300
C)#3 with an NPV of approximately $329,570
D)#2 with an NPV of approximately $400,000
E)None of the above

Question 24

If the interest rate is 7%,the NPV of alternative #1 is closest to:

A)$350,000
B)$357,000
C)$375,500
D)$400,000

Question 25

When we express the value of a cash flow or series of cash flows in terms of dollars today,we call it the ________ of the investment.If we express it in terms of dollars in the future,we call it the ________.

A)present value; future value
B)future value; present value
C)ordinary annuity; annuity due
D)discount factor; discount rate

Question 26

Which of the following formulas regarding NPV is INCORRECT?

A)NPV + PV(benefits)= PV(Cost)
B)NPV + PV(costs)= PV(benefits)
C)NPV = PV(All project cash flows)
D)All of the above

Question 27

Which of the following statements regarding Net Present Value (NPV)is INCORRECT?

A)The NPV represents the value of the project in terms of cash today.
B)Good projects will have a positive NPV.
C)The NPV of a project is the difference between the present value of its benefits and the present value of its costs.
D)When faced with a set of alternatives,choose the one with the lowest NPV in order to minimize the present value of costs.

Question 28

Which of the following statements regarding the NPV decision rule is FALSE?

A)Reject projects with a NPV of zero,as accepting them is equivalent to reducing firm value.
B)When faced with a set of alternatives,choose the one with the highest NPV.
C)Accept those projects with a positive NPV,as accepting them is equivalent to receiving their NPV in cash today.
D)Reject those projects with a negative NPV.

Question 29

Suppose you will receive $500 in one year and the risk-free interest rate (r_f)is 5%.The equivalent value today is closest to:

A)$475
B)$476
C)$500
D)$525

Question 30

If the interest rate is 7%,the NPV of alternative #3 is closest to:

A)$350,000
B)$357,196
C)$370,561
D)$401,121

Question 31

Use the table for the question(s)below.

If the risk-free interest rate is 10%,then the NPV for Eenie is closest to:

A)-3.64
B)2.73
C)3.18
D)3.64

Question 32

You have an investment opportunity in Germany that requires an investment of $250,100 today and will produce a cash flow of €208,650 in one year with no risk.Suppose the risk-free rate of interest in Germany is 7% and the current competitive exchange rate is €0.78 to $1.00.What is the NPV of this project? Would you take the project?

A)NPV = -$100; No
B)NPV = $100; Yes
C)NPV = $2358; Yes
D)NPV = $3650; Yes

Question 33

You are offered an investment opportunity in which you will receive $25,000 in one year in exchange for paying $23,750 today.Suppose the risk-free interest rate is 6% per year.Should you take this project? The NPV for this project is closest to:

A)Yes; NPV = $165
B)No; NPV = $165
C)Yes; NPV = -$165
D)No; NPV = -$165

Question 34

If the interest rate is 7%,the NPV of alternative #2 is closest to:

A)$350,000
B)$357,196
C)$370,561
D)$401,121

Question 35

You are offered an investment opportunity in which you will receive $23,750 today in exchange for paying $25,000 in one year.Suppose the risk-free interest rate is 6% per year.Should you take this project? The NPV for this project is closest to:

A)Yes; NPV = $165
B)No; NPV = $165
C)Yes; NPV = -$165
D)No; NPV = -$165

Question 36

Rearden Metal needs to order a new blast furnace that will be delivered in one year.The $1,000,000 price for the blast furnace is due in one year when the new furnace is installed.The blast furnace manufacturer offers Rearden Metal a discount of $50,000 if they pay for the furnace now.If the interest rate is 7%,then the NPV of paying for the furnace now is closest to:

A)($15,421)
B)$15,421
C)($46,729)
D)$46,729

Question 37

You have an investment opportunity in Germany that requires an investment of $250,000 today and will produce a cash flow of €208,650 in one year with no risk.Suppose the risk-free rate of interest in Germany is 6% and the current competitive exchange rate is €0.78 to $1.00.What is the NPV of this project? Would you take the project?

A)NPV = 0; No
B)NPV = -$2358; No
C)NPV = $2358; Yes
D)NPV = $13,650; Yes

Question 38

If the discount rate is 15%,then which alternative should the owner choose:

A)#1
B)#2
C)#3
D)either #1 or #2
E)either #1 or #3

Question 39

If the interest rate is 7%,the alternative with the highest NPV is:

A)Alternative #1 with an NPV of approximately $350,000
B)Alternative #2 with an NPV of approximately $370,561
C)Alternative #3 with an NPV of approximately $357,196
D)Alternative #2 with an NPV of approximately $380,561

Question 40

If the discount rate is 15%,the alternative with the highest NPV is:

A)#1 with an NPV of approximately $350,000
B)#2 with an NPV of approximately $341,300
C)#3 with an NPV of approximately $329,570
D)#2 with an NPV of approximately $400,000
E)None of the above

Question 41

You have an investment opportunity in the United Kingdom that requires an investment of $500,000 today and will produce a cash flow of £320,000 in one year with no risk.Suppose the risk-free rate of interest in the U.K is 6% and the current competitive exchange rate is $1.70/£.What is the NPV of this project? Would you take the project?

Question 42

Use the table for the question(s)below.

If the risk-free interest rate is 10%,then of the four projects listed,if you could only invest in one project,which one would you select?

A)Eenie
B)Meenie
C)Mighty
D)Moe

Question 43

Which of the following statements regarding arbitrage is the most correct?

A)Any situation in which it is possible to make a profit without taking any risk is known as an arbitrage opportunity.
B)Any situation in which it is possible to make a profit without making any investment is known as an arbitrage opportunity.
C)We call a competitive market in which there are no arbitrage opportunities an arbitrage market.
D)The practice of buying and selling equivalent goods in different markets to take advantage of a price difference is known as arbitrage.

Question 44

Which of the following statements regarding the Law of One Price is INCORRECT?

A)At any point in time,the price of two equivalent goods trading in different competitive markets will be the same.
B)One useful consequence of the Law of One Price is that when evaluating costs and benefits to compute a net present value,we can use any competitive price to determine a cash value,without checking the price in all possible markets.
C)If equivalent goods or securities trade simultaneously in different competitive markets,then they will trade for the same price in both markets.
D)An important property of the Law of One Price is that it holds even in markets where arbitrage is not possible.

Question 45

Use the table for the question(s)below.

If the risk-free interest rate is 10%,then of the four projects listed,if could only invest in two of these projects,which two projects would you select?

A)Mighty & Eenie
B)Mighty & Meenie
C)Eenie & Moe
D)Eenie & Meenie

Question 46

You are up late watching TV one night and see an ad from Ronco for the Dial-o-matic food slicer.You learn that the Dial-o-matic sells for $29.95.But wait,there is more.Ronco is also including in this deal a set of Ginsu steak knives worth $10.95 and another free gift worth $7.95.Assuming that there is a competitive market for Ronco items,at what price must Ronco be selling this three item Dial-o-matic deal to insure the absence of an arbitrage opportunity and uphold the law of one price?

Question 47

Use the table for the question(s)below.

Assume that the risk-free interest rate is 10%.Rank each of the four projects from most desirable to least desirable based upon NPV.Which project would you invest in first? Are there any projects that you wouldn't invest in?

Question 48

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 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 ensure the absence of an arbitrage opportunity and uphold the law of one price?

A)$4.08
B)$4.38
C)$5.47
D)$5.77

Question 49

Walgreen Company (NYSE: WAG)is currently trading at $48.75 on the NYSE.Walgreen Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50.Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on a block trade of 100 shares?

A)No,no arbitrage opportunity exists.
B)Yes,buy on NASDAQ and sell on NYSE,make $25.
C)Yes,buy on NYSE and sell on NASDAQ,make $25.
D)Yes,buy on NASDAQ and sell on NYSE,make $250.

Question 50

Which of the following statements regarding value additivity is FALSE?

A)The value of a portfolio is equal to the sum of the values of its parts.
B)The price or value of the entire firm is equal to the sum of the values of all projects and investments within the firm.
C)To maximize the value of the entire firm,managers should make decisions that maximize NPV.
D)Value additivity does not have important consequences for the value of the entire firm,only on portfolios of firms.

Question 51

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 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 exists and if so how would you exploit it and how much would you make on one extra value meal?

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

Question 52

Use the table for the question(s)below.

If the risk-free interest rate is 10%,then of the four projects listed,which project would you never want to invest in?

A)Eenie
B)Meenie
C)Mighty
D)Moe

Question 53

Consider two securities,A & B.Suppose a third security,C,has the same cash flows as A and B combined.Given this information about securities A,B,& C,which of the following statements is INCORRECT?

A)If the total price of A and B is cheaper than the price of C,then we could make a profit selling A and B and buying C.
B)Price(C)= Price(A)+ Price(B).
C)Because security C is equivalent to the portfolio of A and B,by the law of one price they must have the same price.
D)The relationship known as value additivity says that the value of a portfolio is equal to the sum of the values of its parts.

Question 54

Advanced Micro Devices (NYSE: AMD)is currently trading at $20.75 on the NYSE.Advanced Micro Devices is also listed on NASDAQ and assume it is currently trading on NASDAQ at $20.50.Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on a block trade of 1000 shares?

Question 55

Suppose that Bondi Inc.is a holding company that owns both Pizza Hut and Kentucky Fried Chicken Franchised Restaurants.If the value of Bondi is $130 million,and the Pizza Hut Franchises are worth $70 million,then what is the value of the Kentucky Fried Chicken Franchises?

A)$60 million
B)$70 million
C)$130 million
D)Unable to determine with the information provided

Question 56

Which of the following statements is FALSE?

A)Financial transactions are not sources of value,but merely serve to adjust the timing and risk of the cash flows to best suit the needs of the firm or its investors.
B)The NPV of trading a security in a normal market is zero.
C)We cannot separate a firm's investment decision from the decision of how to finance the investment.
D)In normal markets,trading securities neither creates nor destroys value.

Question 57

Use the table for the question(s)below.

If the risk-free interest rate is 10%,then the NPV for Moe is closest to:

A)-3.64
B)2.73
C)3.18
D)3.64

Question 58

Assuming that the film maker issues the new security,the NPV for this project is closest to what amount? Should the film maker make the investment?

A)$1.7 million; Yes
B)$1.7 million; No
C)$2.7 million; Yes
D)$2.7 million; No

Question 59

Without issuing the new security,the NPV for this project is closest to what amount? Should the film maker make the investment?

A)$1.7 million; Yes
B)$1.7 million; No
C)$2.7 million; Yes
D)$2.7 million; No

Question 60

Which of the following statements regarding arbitrage and security prices is INCORRECT?

A)We call the price of a security in a normal market the no-arbitrage price for the security.
B)In financial markets it is possible to sell a security you do not own by doing a short sale.
C)When a bond is underpriced,the arbitrage strategy involves selling the bond and investing some of the proceeds.
D)The general formula for the no-arbitrage price of a security is Price(security)= PV (All cash flows paid by the security).

Question 61

Suppose that the ETF is trading for $362.36; you should:

A)sell the EFT and buy 2 shares of IBM,3 shares of MRK,and 3 shares of C.
B)sell the EFT and buy 3 shares of IBM,2 shares of MRK,and 3 shares of C.
C)buy the EFT and sell 2 shares of IBM,3 shares of MRK,and 3 shares of C.
D)do nothing,no arbitrage opportunity exists.

Question 62

Use the following information to answer the question(s)below.
An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of Apple Inc.(APPL),one share of Google (GOOG),and ten shares of Microsoft (MSFT).Suppose the current stock prices of each individual stock are as shown below:

Suppose that a security with a risk-free cash flow of $1000 in one year trades for $930 today.If there are no arbitrage opportunities,then the current risk-free rate is closest to:

A)6.0%
B)6.5%
C)7.0%
D)7.5%

Question 63

An American Depository Receipt (ADR)is a security issued by a U.S.bank and traded on a U.S.stock exchange that represents a specific number of shares of a foreign stock.Siemens AG has an ADR that trades on the NYSE and is equivalent to one share of Seimens AG trading on the Frankfurt Stock Exchange in Germany.If Seimens trades for $95.19 on the NYSE and for €64.10 on the Frankfurt Stock Exchange,then under the law of one price,the current exchange rate is closest to:

A)$0.6744/€
B)€0.6734/$
C)€1.4850/$
D)$1.5274/€

Question 64

Use the following information to answer the question(s)below.
An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of Apple Inc.(APPL),one share of Google (GOOG),and ten shares of Microsoft (MSFT).Suppose the current stock prices of each individual stock are as shown below:

If the ETF is currently trading for $1200,what arbitrage opportunity is available? What trades would you make?

Question 65

The price per share of the ETF in a normal market is closest to:

A)$161.31
B)$322.62
C)$362.36
D)$483.93

Question 66

Use the table for the question(s)below.

If the risk-free rate of interest is 7.5%,then the value of security "B" is closest to:

A)$91.00
B)$92.50
C)$93.00
D)$100.00

Question 67

Use the table for the question(s)below.

Suppose a risky security pays an average cash flow of $100 in one year.The risk-free rate is 5%,and the expected return on the market index is 13%.If the returns on this security are high when the economy is strong and low when the economy is weak,but the returns vary by only half as much as the market index,what risk premium is appropriate for this security?

A)4%
B)6.5%
C)9%
D)11%

Question 68

Suppose a security with a risk-free cash flow of $1000 in one year trades for $909 today.If there are no arbitrage opportunities,then the current risk-free interest rate is closest to:

A)8%
B)10%
C)11%
D)12%

Question 69

Use the table for the question(s)below.

Suppose a risky security pays an average cash flow of $100 in one year.The risk-free rate is 5%,and the expected return on the market index is 13%.If the returns on this security are high when the economy is strong and low when the economy is weak,but the returns vary by only half as much as the market index,then the price for this risky security is closest to:

A)$88
B)$92
C)$93
D)$95

Question 70

What is the NPV of this project if the film maker invests his own money and does not issue the new security? What is the NPV if the film maker issues the new security?

A)$1.7 million; $1.7 million
B)$1.7 million; $2.7 million
C)$2.7 million; $1.7 million
D)$2.7 million; $2.7 million

Question 71

Use the table for the question(s)below.

If the value of security "C" is $180,then what must be the value of security "A"?

A)$80
B)$90
C)$100
D)Unable to determine without the risk-free rate.

Question 72

Use the table for the question(s)below.

If the risk-free rate of interest is 7.5%,then the value of security "A" is closest to:

A)$91.00
B)$92.50
C)$93.00
D)$100.00

Question 73

Pfizer Inc.(PFE)stock is currently trading on the NYSE with a quoted bid of $18.35 and an ask price of $18.40.At the same time NASDAQ dealers are posting for following bid and ask prices for PHE:

Trading with which of these NASDAQ dealers provides an arbitrage opportunity when compared to the NYSE quotes?

A)Only NASDAQ dealer #1
B)Only NASDAQ dealer #2
C)Only NASDAQ dealer #3
D)Both NASDAQ dealer #1 and dealer #3
E)None of the above

Question 74

Use the following information to answer the question(s)below.
An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of Apple Inc.(APPL),one share of Google (GOOG),and ten shares of Microsoft (MSFT).Suppose the current stock prices of each individual stock are as shown below:

If the ETF is currently trading for $1300,what arbitrage opportunity is available? What trades would you make?

Question 75

Which one of the following statements is FALSE?

A)When we compute the return of a security based on the average payoff we expect to receive,we call it the expected return.
B)The notion that investors prefer to have a safe income rather than a risky one of the same average amount is call risk aversion.
C)Because investors are risk averse,the risk-free interest rate is not the right rate to use when converting risky cash flows across time.
D)The more risk averse investors are,the higher the current price of a risky asset will be compared to a risk-free bond.

Question 76

Use the table for the question(s)below.

What is the no-arbitrage price for security C?

A)$800
B)$1600
C)$3200
D)$4000

Question 77

Use the following information to answer the question(s)below.
An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of Apple Inc.(APPL),one share of Google (GOOG),and ten shares of Microsoft (MSFT).Suppose the current stock prices of each individual stock are as shown below:

The price per share of this ETF in a normal market is closest to:

A)$800
B)$1001
C)$1067
D)$1267

Question 78

Use the table for the question(s)below.

Based upon the information provided about securities A,B,and C,the risk-free rate of interest is closest to:

A)4%
B)5%
C)8%
D)10%

Question 79

The price per share of the ETF in a normal market is:

Question 80

Assume that the ETF is trading for $366.00,what (if any)arbitrage opportunity exists? What (if any)trades would you make?