Final answer:
The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. Therefore, the given statement is true.
Step-by-step explanation:
The statement that says the price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate is true.
The concept of present discounted value (PDV) is used to calculate appropriate prices for stocks and bonds. By discounting the future dividends at the dividend growth rate, which takes into account the expected future profits earned by the firm, the present value of the stock can be determined.
For example, if a stock is expected to pay dividends of $1 in the future and the dividend growth rate is 10%, the present value of that future dividend would be $0.9091 (1 divided by 1.1). The sum of all the present values of the expected future dividends gives the price of the stock.