Question: 4. Equity valuation (a) Derive the Dividend Discount Model (DDM) (10 marks) (b) Discuss how to use this model to evaluate stocks (20 marks) (c)

4. Equity valuation (a) Derive the Dividend Discount Model (DDM) (10

4. Equity valuation (a) Derive the Dividend Discount Model (DDM) (10 marks) (b) Discuss how to use this model to evaluate stocks (20 marks) (c) Suppose that a company expects to pay a 2.50 dividend in the first 2 years and then expects it to grow at 12% through the end of year 4. After year 4 dividend payment grows at the constant rate of 6% and stabilizes at 6%. What is the value of this stock? (20 marks)

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