Shares in Company A are currently trading in the market at a price of $16.23. Market analysts expect the next dividend per share (to be paid one year from today) is $1.45 and that the return on equity for Company As stock should be 13.5%.

a. What does the market expect Company As stock to be trading at one year from today?

b. Suppose that you agree with the market on everything except the required return on equity. In particular, you think company As stock is not as risky as the market seems to think and you would only require a return of 11%. What position should you take? Justify your answer.

c. Now suppose the company is looking to have an unexpectedly good year and analysts upgrade the expected dividend to $1.86 a one-time change. What will happen to the current market price of Company As stock? Justify your answer.