Question: Maritime Bank recently announced that its next semiannual dividend (to be paid six months from now) will be $1 per share. A stock analyst's best

Maritime Bank recently announced that its next semiannual dividend (to be paid six months from now) will be $1 per share. A stock analyst's best estimate for the growth in future dividends is 4% compounded semiannually.

a. If you require a rate of return of 5.8% compounded semiannually on the stock, what maximum price should you be willing to pay per share? Ignore the present value of dividends beyond a 50-year time horizon.

b. What price do you obtain if you do not ignore dividends beyond 50 years? Use a large value, say 1000, for n in the present value calculation.

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