Fight Finance

Question 41  DDM, income and capital returns

The following is the Dividend Discount Model (DDM) used to price stocks:

$$P_0 = \frac{d_1}{r-g}$$

Assume that the assumptions of the DDM hold and that the time period is measured in years.

Which of the following is equal to the expected dividend in 3 years, $d_3$?

(a) $d_1(1+g)^3$

(b) $P_3(r-g)$

(c) $d_2(1+g)^2$

(d) $P_0(1+g)^3(r-g)$

(e) $P_0(1+g)^2(r-g)$