According to the concept of time value of money, what is true about the future value of an amount?

• A. It will always be less than the original amount
• B. It may be equal to the original amount
• C. It will always be greater than the original amount
• D. It can never be predicted

Answer: (C)

The future value of an amount, according to the time value of money concept, is based on the premise that money has the potential to earn interest or generate returns over time. When you invest or save money, you typically earn interest, meaning that the original amount will increase in value.

This principle asserts that the future value of an investment is always greater than the present value, assuming a positive interest rate or return. This is because the money can be compounded over time, which means that you not only earn interest on the initial amount but also on any interest that accumulates over subsequent periods. Hence, when comparing the future value to the original amount, the future value will always reflect an increase, provided there is no unusual circumstance like a negative return.

In cases where there is no interest or the interest rate is zero, the future value could theoretically be equal to the original amount, but this is generally not considered since investments typically yield some level of return. As such, the future value being greater than the original amount serves as a fundamental understanding of why investing earlier rather than later is advantageous.