Exponential Growth

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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.

BREAKING DOWN '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.

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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 >>
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    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  4. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  5. What percentage of a diversified portfolio should large cap stocks comprise?

    The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
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