DEFINITION of 'Exponential Growth'
Exponential growth is a pattern of data that shows greater increases with passing time, creating the curve of an exponential function. On a chart, this curve starts out slowly, remaining nearly flat for a time before increasing swiftly as to appear almost vertical. It follows the formula:
V = S * (1 + R) ^ T
The current value, V, of an initial starting point subject to exponential growth can be determined by multiplying the starting value, S, by the sum of one plus the rate of interest, R, raised to the power of T, or the number of periods that have elapsed.
BREAKING DOWN 'Exponential Growth'
In finance, compound returns cause exponential growth. The power of compounding is one of the most powerful forces in finance. This concept allows investors to create large sums with little initial capital. Savings accounts that carry a compounding interest rate are common examples.
Application of Exponential Growth
Assume you deposit $1,000 in an account that earns a guaranteed 10% rate of interest. If the account carries a simple interest rate, you will earn $100 per year. The amount of interest paid will not change as long as no additional deposits are made.
If the account carries a compound interest rate, however, you will earn interest on the cumulative account total. Each year, the lender will apply the interest rate to sum of the initial deposit, along with any interest previously paid. In the first year, the interest earned is still 10% or $100. In the second year, however, the 10% rate is applied to the new total of $1,100, yielding $110. With each subsequent year, the amount of interest paid grows, creating rapidly accelerating, or exponential, growth. After 30 years, with no other deposits required, your account would be worth $17,449.40.
While exponential growth is often used in financial modeling, reality is often more complicated. The application of exponential growth works well in the example above because the rate of interest is guaranteed and does not change over time. In most investments this is not the case. For instance, stock market returns do not smoothly follow longterm averages each year many models assume.
Other methods of predicting longterm returns – such as the Monte Carlo simulation, which uses probability distributions to determine the likelihood of different potential outcomes – have seen increasing popularity. Exponential growth models are more useful to predict investment returns when the rate of growth is steady.

Compound Interest
Compound interest is interest calculated on the initial principal ... 
Interest Rate
Interest rate is the amount charged, expressed as a percentage ... 
Growth Curve
A growth curve is a graphical representation of how a particular ... 
Compound
Compound is the ability of an asset to generate earnings, which ... 
Triple Exponential Average  TRIX
The triple exponential average (TRIX) indicator is an oscillator ... 
Rule Of 70
The rule of 70 is a means of estimating the number of years it ...

Trading
Percentage Price Oscillator – An 'Elegant Indicator'
The percentage price oscillator, which measures momentum, is among the more sophisticated tools in the technical analysis arsenal. 
Investing
Exponential: My Favorite Term
John Mauldin shares why "exponential" is his favorite financial term. 
Investing
Learn simple and compound interest
Interest is defined as the cost of borrowing money or the rate paid on a deposit to an investor. Interest can be classified as simple interest or compound interest. 
IPF  Banking
APR and APY: Why Your Bank Hopes You Can't Tell The Difference
Do you know the difference between Annual Percentage Rate and Annual Percentage Yield? Check out how they can affect your own account balance. 
Personal Finance
Where to Put Your Cash: Call Deposit vs. Time Deposit Accounts
Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash. 
Investing
Let the Power of Compounding Increase Your Investments
The power of compounding can exponentially increase the value of your investments over time. 
Investing
The Effective Annual Interest Rate
The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding. 
Investing
Overcoming Compounding's Dark Side
Understanding how money is made and lost over time can help you improve your returns.

Simple versus compound interest
Different methods in interest calculation can end up different interest payment. Learn the differences between simple and ... Read Answer >> 
Stated Annual Return vs Effective Annual Return
The difference between these two measures is the effective annual return accounts for intrayear compounding, and the stated ... Read Answer >> 
What determines the interest rate on my money market account?
Placing funds in a money market account may provide a higher interest rate than a savings account due to the underlying securities ... Read Answer >> 
Why is the Triple Exponential Moving Average (TEMA) important for traders and analysts?
Learn how the triple exponential moving average is calculated and the indications it provides that are most helpful to traders ... Read Answer >>