Analyze the relation between required rate of return, expected dividend growth, and stock value.

Determination of stock value based on Dividend Discount Model.

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According to the infinite period Dividend Discount Model, an increase in the spread between the required rate of return on a common stock and the expected growth rate in its dividends will probably cause

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According to the infinite period Dividend Discount Model, the value of a common stock is equal to a fraction with next period's dividend in the numerator, and the spread between the required rate of return and the expected growth rate in dividends in the denominator. An increase in the spread will increase the value of the denominator, thereby decreasing the value of the stock.

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