Which scenario best illustrates the concept of time value of money?

The concept of time value of money revolves around the idea that a certain amount of money today has a different purchasing power and potential earning capacity compared to the same amount in the future. This principle highlights the benefits of investing or saving money rather than simply holding onto it without interest or growth.

In this scenario, investing in a certificate of deposit (CD) versus holding cash clearly illustrates the time value of money. When you invest in a CD, you are effectively allowing your money to grow over time due to the interest it earns. This means that the money you put into the CD today can increase in value by the time it matures, providing you with more financial resources in the future.

On the other hand, if you simply hold cash, it does not earn any interest or increase in value. Over time, due to inflation and the opportunity cost of not investing, the real value of that cash decreases. Therefore, this scenario highlights the advantages of making financial decisions that leverage the time value of money, such as investing in accounts that yield interest.

Other options do not accurately represent the time value of money concept. For instance, buying groceries with a credit card involves immediate consumption and does not engage the idea of future value or growth. Similarly, using cash