1.Portfolio Management, Inc., (PMI) expects a cash flow of $10,000,000 in two months. The composition of the PMI portfolio is 40% large-cap equities, 40% small-cap equities, and 20% bonds. Using the following information, determine the appropriate strategy for PMI managers to synthetically preinvest the $10,000,000, so that it earns returns equivalent to those of their current positions:

Large-cap beta = 0.9; small-cap beta = 1.35; bond duration = 6.3; yield beta = 1.0.

Large-cap futures beta = 1.0; small-cap futures beta = 1.30.

Treasury futures duration = 5.8.

Large-cap futures price = $1,400, multiplier = $250; (=350,000).

Small-cap futures price = $1,100, multiplier = $250; (=275,000)

Treasury futures price = $100,000.