Final answer:
The statement is false; stock prices are based on the present discounted value of all expected future dividends, discounted at the investor's required rate of return, not just the dividend growth rate.
Step-by-step explanation:
The statement that 'the price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate' is false. The price of a stock is actually the present value of all expected future dividends, discounted at the investor's required rate of return, which takes into account various factors including, but not limited to, the dividend growth rate. Calculating this present discounted value (PDV) can be challenging and involves forecasting future dividends and determining an appropriate discount rate that reflects the risk associated with the investment.
Expected profits and the selection of a discount rate are indeed crucial in financial valuation. Deciding which interest rate to apply for discounting future cash flows to the present involves considering various factors, like the cost of capital, expected capital gains, and dividends. Differing assessments of these factors are precisely why opinions on the value of a stock can vary substantially between investors.