find g in constant growth rate model?

38.25= 1.5x(1+g)/0.1-g

Find g.

Elan gives the following explanation but it doesn’t make it very clear how they break it down this way:

Vo=[Do x (1+g)]/r-g

38.25=[1.5 x (1+g)]/0.1-g



Haven’t had a problem solving for r previously, but with g in the numerator as well as the denominator I am struggling a bit with this one. Any help explaining this would be appreciated

This looks like straightforward algebra, something in particular you are strugginling with?

Don’t worry about learning how to find r or g. On the exam just do trial and error. Start with the first choice, if it’s wrong then go to the second and then third if necessary.

As Ro said, straight forward algebra.

Vo=[Do x (1+g)]/(r-g)

Multiply both sides by (r-g)

Vo® - Vo(g) = Do+ Do(g)

Add Vo(g) to both sides

Vo®= Do + Do(g) + Vo(g)

Subtract Do from both sides

Vo® - Do= Do + Vo

Divide both sides by [Do + Vo]

[Vo® - Do] / [Do + Vo] = (g)

Can we not use trial and error for this question on the exam as highlighted by tjack ?

Sure you can, but why not directly solve for the answer rather plugging and chugging maybe 3 times. If you use trial and error on too many questions that could be wasted time.

Just try the middle value, then you’ll know if you need the smaller or larger one.