Question

Suppose a stock is expected to pay a $0.50 dividend every quarter and the required return is 10% with quarterly compounding . What is the price ?

Answer 1

If dividends are expected at regular intervals forever, then this is a perpetuity and the present value of expected future dividends can be found using the perpetuity formula

P0 = D / R

P0 = .50 / (.1 / 4) = $20

Your price would be $20

Hope this helps :)