From yearly to monthly interest rate

Cynthia's parents want to invest in real estate for their daughter and will borrow a capital of 125,000 EUR to finance an apartment. A local bank provides mortgage loans at a yearly interest rate of 3.04%. The parents want to pay back the loan with fixed monthly payments over the next 20 years.

Can you derive how high these monthly payments will be?

In this first exercise you will focus on the transition from yearly to monthly interest rate.

This exercise is part of the course

Life Insurance Products Valuation in R

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Exercise instructions

Define number_payments as the number of payments to be made. The loan will be paid back using monthly mortgage payments over a time period of 20 years.
Set i equal to the yearly nominal interest rate of 3.04%, hence 0.0304.
Calculate the monthly interest rate monthly_interest from the yearly interest rate i.

Hands-on interactive exercise

Have a go at this exercise by completing this sample code.

# Define the number of payments
number_payments <- ___

# Define the yearly interest rate
i <- ___
  
# Calculate the monthly interest rate
monthly_interest <- (___) ^ (___) - 1
monthly_interest

Edit and Run Code