marsilni

thisisbrianly Wrote:
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> anish, I'm not exactly sure what your question
> is....are you just trying to understand why the PV
> of a payment stream with payments in the beginning
> of the month is more than the same payment stream
> at the end? I'm not sure, byt maybe this will
> help - the difference between the "ending period"
> stream and "begin" is that all the payments
> essentially get made 30-days earlier in the
> "begin" stream.
>
> The only payments that are affected by "beg or
> end" are the 1st payment (which occurs at T0 for
> the "beg" stream instead of T1 for "end") and the
> last payment (which occurs 30-days earlier for the
> "beg" stream). The timing of all the other
> payments are identical since the "end" of T1 is
> the same as the "beginning" of T2, "end of T3 =
> beg of T4", etc.
>
> The difference between the PV of the two streams
> is $677. This is completely accounted for by the
> difference in PV between the T0 and T360
> payments:
>
> The PV T0 payment is obviously $742.50.
> The PV T360 is:
> n = 360
> i = 8.125/12
> FV = 742.5
> Calc PV = $65.41
>
> $742 - 65 = $677
>
> Again, not sure if I answered your question, but
> hopefully the explanation above helps. Just
> remember that the only things that are different
> about "beg" and "end" streams is the timing of
> first and last payments...all the other payments
> are basically the same.
>

Thanks for your response Brian. Actually my question is 'We pay monthly mortgage payment at the beginning of every month. Then the first payment (month 1) should have 0 interest component (as happens in case of capital leases) and the entire payment should go toward reducing the principal. But that doesn't happen. Why?'

I am sorry if I was unclear before.