It depends on individual transactions (and their value) and the coin age. If someone is staking then a minimum cycle is 8 hours so someone could lets say deposit 1000 into their wallet and approximately 8 hours later:
What do you mean by minimum cycle? It seems that certain addresses mine PoS block much faster.
They get 0.01 interest (this is purely an example value to simplify this explanation) and such get returned 2 new transactions. One of which is for 500, the other for 500.01.
This is not correct. AFAIK there is only one PoS transaction in each PoS block. This transaction can have one or more outputs.
Approximately 8 hours later:
The previous transaction for 500 splits and returns one transaction for 250, one transaction for 250.005
The previous transaction for 500.01 splits and returns one transaction for 250, one transaction for 250.0125
At this stage, one initial deposit has become 4 transactions and this process keeps repeating at approximately 8 hour intervals if a wallet is left open for staking. On the next cycle there are 8 transactions, then 16, then 32, then 64. etc.
What exactly don't you grasp about this concept?
This is not possible. Such exponential growth would quickly cause blockchain to use enormous amounts of disk space. For example, if the number of "transactions" double in every period that lasts 8 hour, then in 1 month there will be 30*8 doublings.
2^240 = 1766847064778384329583297500742918515827483896875618958121606201292619776
This is enormous number.
You realise you're coming off as an imbecile right? You can't even grasp the basic functionality of Proof Of Stake.
You're not guaranteed to stake in 8 hours, that is just the bare minimum a transaction becomes eligible. The difficulty increases to compensate and average out the block generation to the defined speed, just as it does with Proof Of Work.