Problem 5-3

Many academic institutions offer a sabbatical policy. Every seven years a professor is given
a year free of teaching and other administrative responsibilities at full pay. For a professor
earning $70,000 per year who works for a total of 42 years, what is the present value of the
amount she will earn while on sabbatical if the annual interest rate is 6% (EAR)?

Salary $70,000
Interest rate 6.00%
Years between sabbaticals 7
Years of employment 42

Number of sabbaticals 6
7-year period interest rate 50.36%
Value today $126,964.34

Requirements
1. Start Excel – completed.
2. In cell C11, by using cell references, calculate the number of sabbaticals the professor has
taken (1 pt.).
3. Before calculating the value today, you need to find the seven-year-period interest rate you
will use to discount each amount earned during sabbatical years. In cell C12, by using cell
references, calculate the seven-year-period interest rate (1 pt.).
4. To calculate the value today, calculate the present value of the salaries during sabbatical
years using the function PV. In cell C13, by using the function PV and cell references,
calculate the value today (1 pt.).
Note: The output of the function in cell C13 is expected as a positive value.
5. Save the workbook. Close the workbook and then exit Excel. Submit the workbook as direc
cal policy. Every seven years a professor is given
ative responsibilities at full pay. For a professor
total of 42 years, what is the present value of the
the annual interest rate is 6% (EAR)?

late the number of sabbaticals the professor has

ed to find the seven-year-period interest rate you

uring sabbatical years. In cell C12, by using cell
interest rate (1 pt.).
present value of the salaries during sabbatical
y using the function PV and cell references,

3 is expected as a positive value.

nd then exit Excel. Submit the workbook as directed.