Of the following four types of investment plans, which option would yield exponential growth of the money in the investment account? A) Each successive year, three percent of the initial investment is added to the value of the account. B) Each successive year, have a percent, 0.5 percent, of the initial investment and 300 dollars are added to the value of the account. C) Each successive year, two percent of the current value is added to the value of the account. Or D) Each successive year, 200 dollars is added to the value of the account.
We’re looking for which of these situations would yield exponential growth. And something that has exponential growth will grow in relation to its current value. And that means we need to look at each option and consider what value is being changed. Option A is taking three percent of the initial investment. Option B also takes a percentage of the initial investment and then adds a constant every year. Option C takes two percent of the current value in the account. And option D only adds a constant amount every year. It’s not taking any percentage.
The only investment plan that could yield exponential growth is option C. Option C is the only plan where the current value is being used to calculate the percent that’s added to the account. If you calculate using the initial investment, your growth is going to be linear and none exponential.