Exponential Growth is the rapid growth in relation to the growing total number with the passage of time. It is a pattern of data that increases greatly with passing time.
For example, if the population of a rabbit family of 2 doubles their population size every 4 months, it becomes 8 after the eighth month. The concerned rabbit population becomes 16 by the end of the year which would be 2048, by the end of the 3rd year, and that is Exponential Growth.
Definition in Finance
It is the growth of assets that becomes rapid in relation to the initial amount, the total accumulated amount, and with the passage of time.
For example, $1,000 USD is deposited in an account with a 10% interest rate and that will give $100 USD each year if the account carries a simple interest rate. By the end of 5 years, you will get a total of $500 USD as interest.
If that same account carried a compound interest rate, you would get $100 USD in the first year. But you would get $610.5 USD as interest by the end of the 5 years time frame.
Use the Term in a Sentence
- Savings accounts with compounding interest rates can create exponential growth.
- With the exponential growth of the world population, the demand for energy has increased substantially.