I need help with Q5 in Chapter 9 the FAIC2 What is the impac

I need help with Q5 in Chapter 9 the FAIC2. What is the impact on the valuation of the stock if the anticipated return on the market rises?

Solution

As per Dividend growth model, the value of the stock is defined as:

P = D1/(Rs-g)

Where

P = Price of Stock

D1 is dividend in next period

Rs = Required Return

g = growth in dividend

So if the required return, Rs increases, the price of the stock (value of the stock) decreases.