Question

Describe the relationship between compound interest and exponential growth.

Answer 1

Basically, exponential growth continues going up, and increases by increasing amounts.
So, if I start with 1, then have 2, then 4, then 8, then 16, the function is increasing, and the increments (1-2, 2-4, 4-8, 8-16,...) are increasing.
With compound interest, any money you have in a bank will make a certain amount of interest in a year. Let's assume 5%. If you start with $100, after one year you will have $105 (=$100 + .05 x 100). After another year, the interest is added to what you have, so you are now calculating 5% interest on $105, which gives $110.25. Since the amount of money in your account is increasing, the interest from that money will grow. Because it is compounded interest, it is not just based on the initial deposit, but on the current balance.

Does this make sense?

Answer 2

yep...great explanation