Final answer:
It is true that the present value of a stream of lottery payments is less than the stated jackpot due to the time value of money and factors such as interest rates and the riskiness of future payments. Option number a is correct.
Step-by-step explanation:
The statement that the present value of a stream of lottery payments is less than the size of the stated jackpot is true. This is because, due to the time value of money, a given amount of money today is worth more than the same amount in the future. Therefore, when calculating present value, we discount future payments back to their value in today's dollars, which results in a present value that is typically less than the sum of the nominal future payments.
Real-world calculations of present value consider factors like market interest rates and the riskiness of payments. For example, the price of a bond is the present value of a stream of future expected payments, which takes into account the current interest rates and the likelihood of repayment.
1