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Arbitrage Pricing Theory

Explore commonly used personal finance terms.

Arbitrage Pricing Theory (APT) is an asset pricing model that explains returns based on several macroeconomic factors, such as inflation, interest rates, and market risk. Unlike the Capital Asset Pricing Model (CAPM), which relies on a single market factor, APT accounts for multiple sources of risk, providing a more comprehensive view of expected returns. APT is used by portfolio managers and analysts to price securities and assess whether assets are over- or under-valued, enabling informed investment strategies.

Other glossary terms

Account Statement

Summary of transactions in a financial account

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Accounts Payable

Amount owed to suppliers

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Accounts Receivable Financing

Financing secured by accounts receivable

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Accounts Receivable Turnover

Ratio measuring how effectively credit sales are collected

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Accrued Benefit

Pension benefit earned to date

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Accrued Dividend

Dividend earned but not yet received

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Accrued Expense

Expense recognized before it’s paid

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Accrued Income

Income earned but not yet received

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Accrued Interest

Interest earned but not yet paid

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Accrued Liability

Expense recognized but not yet paid

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Accrued Market Discount

Gain on a bond bought below par value

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Accrued Revenue

Revenue earned but not yet received

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Accumulated Benefit Obligation (ABO)

Estimated pension liability based on current salary

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Accumulated Deficit

Negative retained earnings balance

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Accumulated Depreciation

Total depreciation taken on an asset over time

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Accumulated Earnings

Profits retained for reinvestment rather than paid out as dividends

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Accumulated Funding Deficiency

Shortfall in required pension plan funding

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Accumulated Interest

Interest that has accumulated but not yet paid

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Accumulated Other Comprehensive Income (AOCI)

Gains and losses excluded from net income

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Accumulation Account

Account used for reinvesting investment earnings

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