When using the constant-growth dividend valuation model, which of the following will lower the value of the stock?
A) an increase in the required rate of return
B) a decrease in the required rate of return
C) an increase in the dividend payout ratio
D) an increase in the growth rate of the dividends

Question

Quizplus · Accepted Answer

The constant-growth dividend valuation model (also known as the Gordon Growth Model) calculates the value of a stock as the present value of its future dividends, which are assumed to grow at a constant rate. According to this model, the value of a stock is inversely related to the required rate of return. Therefore, an increase in the required rate of return will lower the value of the stock, as it increases the discount rate applied to future dividends, reducing their present value.

When Using the Constant-Growth Dividend Valuation Model, Which of the Following