SOLVE ALL PARTS ACCURATELY

cky has categorized all the available stock in the market into the followingtypes: (i) Small cap growth stocks (ii) Small cap value stocks (iii) Large cap growth stocks (iv) Large cap value stocks Rocky also estimated the weights of the above categories of stocks in the market index. Further, the sensitivity of returns on these categories of stocks to the three important factor are estimated to be: The rate of return on treasury bonds is 4.5% Reguired: (a) Using Arbitrage Pricing Theory, determine the expected return on the market index. (b) Using Capital Asset Pricing Model (CAPM), determine the expected return on the market index. (c) Recky wants to construct a portfolio constituting only the 'small cap value' and 'large cap growth' stocks. If the target beta for the desired porffolio is 1 , determine the composition of his portfolio