What does the concept of the time value of money signify?

The concept of the time value of money signifies that a dollar today is worth more than a dollar in the future due to the potential earning capacity of that dollar. This principle is based on the idea that money can earn interest or generate returns when invested, meaning that the value of money changes over time.

If you have a dollar today, you can invest it to earn interest or returns, making it grow in value over time. For example, if you invest a dollar today at a certain interest rate, in the future, it will be worth more than just a single dollar due to the interest accrued. On the other hand, a dollar received in the future doesn't have the same earning potential as a dollar in hand today, thus making it less valuable.

Therefore, the correct answer reflects this fundamental financial principle where the value of money decreases over time due to factors like inflation and lost opportunity for investment. Understanding this concept is vital for making informed financial decisions, especially regarding investments and retirement planning.