Which of the following best describes the Dividend Discount Model (DDM)?

The Dividend Discount Model (DDM) is a valuation method used to estimate the price of a company's stock based on its expected future dividend payments. It operates on the principle that the value of a stock is equal to the present value of its future dividends. Investors use this model to assess the intrinsic value of a stock by forecasting the future dividends that are anticipated to be paid and discounting those payments back to their present value using a required rate of return.

This model is particularly applicable for companies that have a consistent history of dividend payments and are expected to continue paying dividends in the future. The DDM is a popular tool among investors who focus on income generated from dividends, as it directly ties the valuation of a stock to its cash return to shareholders.

The other choices do not pertain to the DDM: analyzing company debts focuses on financial leverage and solvency, managing currency risk involves strategies for mitigating fluctuations in exchange rates, and investing in mutual funds deals with pooling resources into diversified portfolios, none of which involve the direct assessment of stock prices through dividend expectations.