Proof for the Growing Annuity Model

n
CFt
n
1  g  t 1 n t

PVGA =  (1  r )
t 1
t Let X = CF1; PVGA =  t 1
X
1  r  t
= 
t 1
X 1 g 
 
1 g  1 r 

The second term in the summation is a finite geometric series that reduces thusly:

1 g 
 n  
Let  =
1 r
; 
j 1
j
=
1 
; 
j 1
j
= 
j 1
j
- 
j  n 1
j
;

 
n


  1    =   j =
j 1
j n
1 
1  n
j 1

This term gets plugged back into the model:

t
X   
 
n
X 1 g 
t 1
  =
1 g  1 r  1 g

1 
 1   n


 1 g
The term reduces to ;
1  rg

 1  g   1  g   X  1 g  
  = 1 X g
n n
X   
  1   n   1     = 1    
1 g 1    r  g    1  r   r  g   1  r  