If the required rate of return used in the dividend growth model is increased, then:

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When the required rate of return increases, the present value of future dividends decreases, leading to a lower current stock value according to the dividend growth model. This model calculates the value of a stock by dividing the dividend per share by the difference between the required rate of return and the dividend growth rate. An increase in the required rate of return makes the denominator larger, thus decreasing the stock's calculated value.

If the Required Rate of Return Used in the Dividend