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Suppose that all companies in a broad market index paid a total amount of $240 million in dividends to their investors in the year that
Suppose that all companies in a broad market index paid a total amount of $240 million in dividends to their investors in the year that just ended yesterday. Assume the required rate of return by equity investors is 8% and the expected growth rate of the dividends is 6%. Using the constant-growth dividend discount model, if investors become more risk averse and increase the required rate of return to 9%, what will happen to the total market value of all companies in the index?
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