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

(a) Derive the Dividend Discount Model (DDM). (10 marks)

(b) Discuss how to use this model to evaluate stocks. (10 marks)

(c) Consider the equity of a company. The dividend per share a year from today will be $1.15. During the following four years the dividend will grow at 15 percent per year. After that, growth will equal 10 percent per year. Can you calculate the present value of the equity if the required rate of return is 15 per cent? (30 marks)

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