Final answer:
The statement is false (b) because the present value of future payments depends on the time value of money and is affected by the discount rate. Without considering interest, ten payments of $100,000 over 9 years are not equivalent to $1 million today.
Step-by-step explanation:
The statement 'Ten payments of $100,000 over 9 years are the same value as $1 million today' suggests that receiving ten payments of $100,000 each over 9 years is financially equivalent to having $1 million in hand today. This claim is false due to the concept of present value and the time value of money, which tells us that a dollar today is worth more than a dollar in the future because of its potential earning capacity. Option b.
The present value of future payments is calculated by discounting them at an appropriate interest rate, which represents the opportunity cost of not having the money available to earn interest. The provided information discusses the present value of a bond and how it can be calculated by taking the future payments and discounting them back to their worth in today's money. Without knowing the discount rate/interest rate, we cannot equate the sum of the payments to $1 million.
Moreover, interest rate risk has been illustrated with an example of purchasing a 10-year bond where the bond's value changes with the fluctuating interest rates, emphasizing the risk and potential losses associated with changes in the market.