What financial concept explains why money given today is more valuable than the same amount in the future?

The concept that explains why money given today is more valuable than the same amount in the future is the time value of money. This principle recognizes that money can earn interest or generate returns when invested, meaning that a dollar today can grow in value over time. Therefore, if you receive money now, you have the ability to invest it, leading to a greater total value in the future.

The future value of a sum of money is affected not only by its potential earning capacity but also by factors such as inflation, which can erode purchasing power. Thus, money today has the potential to provide more opportunities for investment that will yield higher value than the same amount in the future.

The other options, such as inflation rate, risk premium, and opportunity cost, relate to aspects of finance but do not encapsulate the essence of why present money holds greater value than future money as directly as the time value of money does. Inflation specifically touches on purchasing power over time, while risk premium addresses additional returns required for taking on risk, and opportunity cost refers to the potential benefit lost when one alternative is chosen over another. These are supporting factors but do not define the fundamental concept in question.