1. The problem statement, all variables and given/known data This is a question about one single step of a solution of a long equation. http://www.geocities.com/link_herooftime/math.jpg where P, U and V are variables. a, b, c, d are constants and t is the time, which are measured in discrete periods. The question is how to go from equation 1 to equation 3, and how the L appears. Attempted solution I have solved it until equation 2, and I see that the solution requires the extraction of P out of the bracket on the left hand side. Problem becomes how to do it, since the P minus one period doesnt equal P of current period. Nevertheless the key somehow does this. Does this require some other method than simple algebra? The key mentions it is a "stochastic difference equation".