2. Consider an asset manager who wishes to create a fund with exposure to the Russell 2000 stock index. The initial amount to be invested is $300,000,000. The fund will be constructed using the Russell 2000 Index futures contract, priced at 498.30 with a $500 multiplier. The contract expires in three months. The underlying index has a dividend yield of 0.75%, and the risk-free rate is 2.35% per year.

A. Indicate how the money manager would go about constructing this synthetic index using futures.

B. Assume that at expiration, the Russell 2000 is at 594.65. Show how the synthetic position produces the same result as investment in the actual stock index.