What does the time value of money refer to?

The time value of money is a fundamental financial concept that highlights how the value of money can change over time due to potential earning capacity. When stating that money has the potential to grow in value over time, it underscores the idea that investing or earning interest on money leads to an increase in total value. For instance, if $100 is invested at an interest rate of 5% per year, after one year, that amount will grow to $105. This reflects how money can earn returns, making it worth more in the future than it is today.

The other concepts presented in the answer choices do touch on relevant principles related to money and finance, but they do not capture the essence of the time value of money as thoroughly. Understanding the potential for growth due to interest or investment is crucial for making informed financial decisions.