What factors contribute to the "time value" of money?

The concept of the "time value of money" is grounded in the idea that a specific amount of money today is worth more than the same sum in the future due to several key factors.

Risk is inherent in financial decisions, and understanding this risk allows investors to make more informed choices. Money today can be invested or utilized to generate a return or benefit, while future money might not have the same opportunity due to uncertainties.

Inflation represents the decrease in purchasing power over time, meaning that money loses value as prices increase. If you hold onto cash, its effectiveness diminishes over time if it does not keep pace with inflation.

Opportunity cost is the concept that when you choose one option, you forgo the ability to pursue a different option that may potentially yield a higher return. When considering the time value of money, the missed opportunities for growth or earnings if money is not invested can influence decisions about saving and spending.

Thus, risk, inflation, and opportunity cost are all vital elements that illustrate why money has different values at different times, confirming this combination as the correct answer.