Exponential Growth

AAA

DEFINITION of 'Exponential Growth'

A pattern of increasing prices that resembles the curve of an exponential function. In finance, exponential growth is caused by compounding returns. Given enough time, compound interest can theoretically turn even a relatively small amount of principal into a very large sum.

INVESTOPEDIA EXPLAINS 'Exponential Growth'

While exponential growth is often used in financial modeling, reality is often much more complicated. For instance, stock market returns clearly do not smoothly follow long term averages each year as predicted in simple financial calculations. Thus, other methods of analyzing long term portfolio values and expectations, such as Monte Carlo simulation, have seen increasing popularity.

RELATED TERMS
  1. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
  2. Time-Weighted Rate of Return

    A measure of the compound rate of growth in a portfolio. Because ...
  3. Compound

    The ability of an asset to generate earnings, which are then ...
  4. Rule Of 72

    A rule stating that in order to find the number of years required ...
  5. Compounding

    The ability of an asset to generate earnings, which are then ...
  6. Cape Cod Method

    A method used to calculate loss reserves that uses weights proportional ...
RELATED FAQS
  1. What can I use the Rule of 70 for?

    The rule of 70 is used to see how long it takes for an exponentially growing value to double. It is most commonly seen in ... Read Full Answer >>
  2. How does the risk of investing in the aerospace sector compare to the broader market?

    Investing in the aerospace sector is riskier than investing in the broader market. The most accurate measure of sector volatility, ... Read Full Answer >>
  3. How does a pension income drawdown work?

    While there are similar drawdown plans in the United States, a pension income drawdown plan most commonly refers to a specific ... Read Full Answer >>
  4. What is the most important section in an investment company's prospectus?

    It is important for investors to examine all information contained within an investment company’s prospectus. However, the ... Read Full Answer >>
  5. What are the benefits of using ceteris paribus assumptions in economics?

    Most, though not all, economists rely on ceteris paribus conditions to build and test economic models. The reason they do ... Read Full Answer >>
  6. How does the long-term outlook of the Internet sector compare to the broader economy?

    The long-term outlook of the Internet sector is brighter than the broader economy, although winners and losers are unclear. ... Read Full Answer >>
Related Articles
  1. Retirement

    Delay In Retirement Savings Costs More In The Long Run

    The effects of compounding make it cheaper over the long term to save for retirement.
  2. Investing Basics

    Understanding The Time Value Of Money

    Find out why time really is money by learning to calculate present and future value.
  3. Options & Futures

    How Much To Save To Become A Millionaire

    With a little discipline and the help of some powerful savings vehicles, anyone can hit this mark.
  4. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  5. Forex Education

    Compound Annual Growth Rate: What You Should Know

    The CAGR is a good and valuable tool to evaluate investment options, but it does not tell the whole story.
  6. Investing Basics

    APR and APY: Why Your Bank Hopes You Can't Tell The Difference

    Banks use these rates to entice borrowers and investors. Find out what you're really getting.
  7. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  8. Economics

    What is Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  9. Economics

    How to Do a Cost-Benefit Analysis

    The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted.
  10. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center