Which concept describes that money can grow only if invested over time and earns a positive return?

• A. Time Value of Money
• B. Interest
• C. Simple Interest
• D. Compound Interest

Answer: (A)

The main idea here is that time adds value to money because you can invest it to earn a return. The Time Value of Money says a dollar today is worth more than a dollar in the future because it can be put to work to earn returns over time. If you invest and earn a positive return, your money grows; if you don’t invest or the return is zero or negative, growth doesn’t occur. This concept underpins why planning for future needs starts with today’s money and its potential to earn, including how returns compound over time. While terms like interest describe the earnings on an investment and compound interest describes how those earnings accumulate, the overarching idea that money can grow only through time and positive returns is the Time Value of Money.