Many state lotteries have advertised "instant millionaire" lottery games. However, if one wins the game, the state does not write a check for a million dollars. Rather it pays $50,000 a year for 20 years. Using the tables shown and assuming the interest rate is 4, which of the following statements must be true?Annuity Table(value now of $1 Per year To be received for x-years) Present Value Table(Value now to $1 to be received x-years un the future) Year3%4%6%Year3%4%6%108.538.117.36100.740.680.531511.9411.129.71150.640.560.422014.8813.5911.47200.550.460.313019.6017.2913.76300.410.310.17
A. If the winner invests his annual payout, at the end of 20 years he will have a lot more than a million dollars. Hence the state is understating the winnings when it advertises these games as "instant millionaire."
B. The true value of winning is much less than a million. The state has misrepresented the true value of the payout.
C. The state does not care whether it gives a million as a lump sum or spread over 20 years.
D. Since the winner will be given actually a million dollars over 20 years, the state is correct in advertising these games as "instant millionaire."
Answer: B
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