You'll have to go the long way to do C1 divided 1 plus r,

C2 divided by 1 plus r square till such point that r is greater than g.

And that will always happen, think about it.

If g was greater than r, you would own the world.

It's not possible in a steady state, but

those are things that you get to practice in your assessment.

So let's call this the formula and

replace it by DIV1 over r-g.

And I'm going to use examples where r is greater than g.

But as I said, again don't use the formula when it doesn't make sense to use.

For example, if r is equal to g, what are you going to do?

Sit there, stare at the formula.

You have something divided by zero, go figure.

We use the long method.

And that's another thing I don't like about the way we get taught math and

algebra is we are never taught in a context.

I shouldn't say, never.

I was lucky in high school.

I was taught math always in a context and I've benefited so much by it, instead many

times we are taught stuff and all we see is the backside of the person teaching.

And that's not very interesting, anyways.

So let's get started with the formula and

I'm going to now let you take a little while to do it.

This is a good time to take a break, but let's first read the formula.

Suppose Moogle, Inc, I apologize my sense of humor is limited.

Is expected to pay, Ryan is laughing with me.

Is expected to pay dividends of 20% next year.

You see how I have to specify the first dividend?

And the dividends are expected to grow indefinitely at a rate of 5% per year.

Again, the word indefinitely doesn't literally mean forever.

Remember, it's reusing formulas as an approximation.

Stocks of similar firms are earning an expected rate of return of 15% per year.

Why am I saying this?

Because I want to repeatedly remind you

that the 15% is not owned by you.

In fact, it doesn't belong to anybody, it belongs to the marketplace.

Businesses get different rates of return due

to a fundamentally different set of risks.

What should be the price of a share of Moogle, Inc?

So just take a minute and try to do it in your head.

When we come back, we'll do it together and see how easy it is.

Take a break.

See you soon.