Rate of Return (Dollar-Weighted):

Also called the internal rate of return, the interest rate will make the present value of the cash flows from all the sub-periods in the evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.

Real GDP:

The value of final goods and services at prices prevailing in a base year. This removes the discretionary effects of inflation.

Real Rate of Return:

The rate of return on an investment after the effects of inflation have been removed. Hence the return produced by the investment in excess of the rate of inflation.

Real Estate Investment Trust (REIT):

A closed-end investment company that specializes in real estate or mortgage investments.

Real Estate Investment Trusts issue shares that trade on stock exchanges like shares of common stock. There are two types of REITs viz.:-

Mortgage REITs invest primarily in real estate debt such as mortgages.

Equity REITs primarily own real estate, such as shopping centers, apartments and industrial buildings.

Some trusts are a combination of the two and are called Hybrid REITs

Real Return Bonds:

The Canadian federal government issues 30-year bonds with interest rates that are adjusted to account for inflation. The base rate is adjusted according to a formula based on the consumer price index.

Realized/Unrealized Gains:

A gain is realized when an investment is sold for more than the purchase price. An investment that has increased in value, but has not yet been sold, has an "unrealized" gain.

Receivable:

Amounts payable to a person or corporation for goods and/or services produced, sold or rendered for which a bill has been sent.

Receiving Order:

A court order made in response to a petition from your creditors, that effectively vests your property to a trustee, who will administer your estate in accordance with the Bankruptcy and Insolvency Act.

Recession:

That phase in the business cycle in which the pace of economic growth slows. Real GDP falls for two consecutive quarters (six months to recorded as a recession.

Redeemable:

Preferred shares or bonds that give the issuing corporation an option to repurchase securities at a stated price. These are also known as callable securities. Bank and Trust company term deposit are also redeemable but at the option of the note holder.

Redemption Terms:

The formal circumstances involved in redeeming a security, including timing, price, location, etc.

Refinance (Real Estate):

To pay off (discharge) a mortgage and any other registered encumbrances and arrange for a new mortgage with the same lender.

Regional Fund:

A Regional fund is a international mutual fund that invests in securities from one particular area, such as Latin America, India or the Far East.

Registered Annuity:

An annuity purchased from registered funds.

Registered Bond:

A bond whose owner is registered with issuer.

Registered Encumbrances (Real Estate):

Legal claims against real property. Debts for which the property was pledged as security.

Registered Representative ("Registered Rep"):

An individual who has been qualified by the appropriate regulatory agencies to act as a broker.

Registered Education Savings Plans:

RESP is a tax deferral vehicle to save for a child's education. Contributions are not tax deductible, as they are with an RRSP, but the income from plan grows tax free. When the child goes on to post-secondary education the RESP provides income, which is taxable to the child, but usually at a lower rate. If the child does not go on to to post-secondary school, the amounts contributed to the RESP are repaid to the contributor but not the income. The income must be used to for other beneficiaries as scholarships or can be donated to educational institutions. The maximum contribution is $1,500 per year and $31,500 in a lifetime and the RESP may only be tax sheltered for 26 years.

Types:

Pooled Funds -Canadian Scholarship Trust Foundation

-University Scholarship of Canada

-University Foundation of Canada

-Heritage Scholarship Trust Foundation

Self-Directed Funds -Investment Dealers

Mutual Funds - Mutual Fund Companies

Life-Insurance Company - Mutual Funds

- Life Ins Co.

Registered Life Income Fund:

LIFs are also locked like RRIFs. They operate identically to a RRIF but must be converted to annuities by the end of the calendar year in which the individual turns 80. There is also legislation for maximum withdrawals from LIFs.

Registered Retirement Income Fund:

A registered retirement income fund (RRIF) is an investment vehicle used to produce income in retirement. Generally RRIFs are established by transferring money from an RRSP into the RRIF. Payments must then commence from the RRIF at the latest in the year following the year the RRIF is established. RRIF withdrawals are subject to minimum amounts prescribed by Canada Customs and Revenue Agency (CCRA). You may withdraw amounts above the minimum amounts at any time. The RRIF continues as a tax sheltered vehicle and investment income accumulates tax free. All withdrawals are subject to income tax.

Minimum withdrawal amounts are based on age in whole numbers at the start of the year and the RRIF fund value at the start of the year.

The percentages for RRIFs established after 1992 for ages over 70 are prescribed by CCRA. For ages under 71 and RRIFs established prior to 1993 (for ages up to 78) the formula for the minimum withdrawal is 1 divided by 90 minus current age.

There are also locked in RRIFs or LIFs which operate identically to a RRIF but must be converted to annuities by the end of the calendar year in which the individual turns 80. There is also legislation for maximum withdrawals from LIFs.

Registered Retirement Savings Plan:

RRSP - Registered Retirement Savings Plan. An RRSP is a deferred tax savings vehicle. Generally, you are allowed to put money into an RRSP and claim a deduction on your taxes in that year (or a future year) for your contribution. Contributions will accumulate with investment income tax free. When the money is taken out of the RRSP it is taxed as income. Money may be withdrawn at any point, but generally it is accumulated until retirement and an annuity or RRIF is purchased.

Regular Interest Bonds ("R" Bonds):

Canada Savings Bonds that pay interest annually and are therefore non-compounding.

Renegotiate (Real Estate):

To change the terms and conditions of a mortgage agreement prior to maturity. Renegotiation occurs with the lender who presently holds the mortgage.

Renew (Real Estate):

To extend a mortgage agreement with the same lender for another term. The length of the term and the conditions (such as the rate of interest) may be changed.

Renewable Term:

A term life insurance policy that may be renewed at prescribed rates without evidence of insurability.

Rent (Net) (Real Estate):

The rent paid to the landlord before charges for taxes and operating costs. In effect, this is the rent being paid for "the space" as opposed to municipal taxes or building services.

Rent (Net Effective) (NER) (Real Estate):

The portion of the "Net Rent" remaining after stripping out deal-related costs such as free rent periods, leasehold allowances, and lease take overs.

The calculation involves two steps.

First, the present value of the deal-related costs is subtracted from the present value of the net rents.

Second, this residual vale is amortized over the term of the lease at an appropriate discount rate. The monthly payment multiplied by 12 is the net effective rent on the lease.

It is important to appreciate that many factors influence specific NERs. These factors include the occupancy date, lease term, tenant covenant, option requirements, after the presence of existing improvements.

Rentable Area (Real Estate):

The tenant's Usable area (see below) plus an adjustment (or "gross-up") for a proportionate share of common areas, washrooms, etc.

Sublet Space: Space made available to users by existing tenants. It is typically priced at a discount and the term available is limited by the original lease's expiry date.

Term Space: Space made available to users by landlords, but only with a maximum lease term. The landlord cannot make a longer commitment because another tenant in the building has an option to expand [and into the space at some date in the future.

Usable Space: The area of the tenants specific premises. BOMA (Building Owners and Managers Association) sets specific standards for measurement, but these are not always observed by all landlords.

Replacement Value Insurance (Real Estate):

This type of coverage pays the full replacement value for a covered loss rather than just the initial cost less "wear and tear" or depreciation. It is an essential feature of a good homeowners or renters' insurance policy.

Reserve Accounts:

Accounting provisions made for anticipated events, such as a judgment in a lawsuit. Usually taken out of shareholders' equity.

Reserve Requirements:

That portion of savings and chequing deposits that banks are required by government regulation to set aside in order to meet the demand for withdrawals. Remaining funds are loaned out, or invested.

Residence (Student Loan):

For the purpose of qualifying for a Canada student loan, the province or territory of residence is where the student has most recently lived for a least 12 months consecutive months excluding full-time attendance at a post-secondary institution.

Residual Value:

An estimate based on the present value of the after-tax cash flows expected to be earned after the forecast period.

RESP:

Registered Educational Savings Plan. A savings plan designed to help an individual save for the purpose of providing for university education. Receipt of the income is treated on a preferred basis if used for specified university purposes.

Retail:

Individual and institutional customers as opposed to dealers and brokers.

Retained Earnings:

The accumulated profits of a company. These may or may not be reinvested in the business.

Retiring Allowance:

The amount money in a lump sum or in equal payments that is received by an employee upon retirement or upon the death of his or her spouse.

Retractable:

Bonds or preferred shares that allow the holder to require the issuer to redeem the security before the maturity date.

Reporting Issuer:

A company that has issued voting securities or has offered shares to the public on any recognized stock exchange. Issuers must have filed a prospectus for the securities and obtained a receipt from the appropriate securities commission..

Reverse Mortgage:

Reverse mortgages allow individuals with significant equity in their homes to use it as a source of income. Individuals receive either a lump sum or a series of payments and use their residence as collateral. The principle and interest is repaid from the estate upon death or sale of the home. Reverse Mortgages are currently available to residents of British Columbia and Ontario. The amount of equity ranges from 15% to 45%.

Revolving Credit:

Credit that you can use from time to time to buy various goods or services of varying cash value (also called vendor credit).

Rider:

A clause or a condition in an insurance policy which may restrict, add to or more specifically define applicable coverage.

Rights:

Options granted to shareholders to purchase additional shares directly from the company concerned. Rights are issued to shareholders in proportion to the securities they may hold in a company.

Right of Survivorship:

The right to succeed to the ownership or part ownership of property as the result of the death of an owner or part owner.

Risk:

1) The possibility that some invested funds will be lost through a decline in the value of the investment.

2) Degree of uncertainty of return of asset.

We have defined the following 13 types of risks separately, they are shown below as Adjusted assets, Company Risk, Credit Risk, Currency risk, Economic Risk, Industry Risk, Inflation Risk, Interest Rate Risk, Liquidity Risk, Market Risk ,Political Risk, and Reinvestments.

Risk - Adjusted Assets:

Assets categories are assigned pre-determined risk weighting factors. The asset face values are then adjusted by the risk weighting factors in order to reflect a comparable risk per dollar among all types of assets.

Risk - Company:

When you buy shares, you buy part of a business. Even in booming industries, poorly run business' lose money over time.

Risk - Credit:

This is a prime concern for the income investor. What are the chances that the issuer of your bond will suspend interest payments or fail to pay back principal at maturity? What is the risk that dividends on your shares will be cut or skipped? Rating services assess those risks.

Risk - Currency:

This risk applies when your investment is made in foreign money. Perhaps you buy shares on the New York Stock Exchange, or purchase a mutual fund that invests outside Canada. When converted to Canadian dollars, your return will get an extra push up or down, depending on whether the Canadian dollar has gained or lost value.

RISK - Economic:

Some investments are more sensitive than others to changes in the economy. The auto industry is "cyclical." It tends to do well in good times and suffer in downturns. Utilities such as telephone companies are less sensitive..

RISK - Industry:

Some industries are inherently volatile, because the dramatic pace of change means a whole generation of technology can quickly become outdated. Examples include the computer and health industries.

RISK - Inflation:

That's the risk that your investment won't keep up with inflation. It's a major concern for those who buy GICs and other seemingly "risk-free" investments. Say you buy a 5 year GIC that pays 8%. remember that this income stream is fixed for 5 years. If inflation averages 5% a year between now and maturity, your "real return" is only 3%. Real return is the difference between the stated return and the inflation rate. Moreover, if that GIC is not held in an RRSP or some other tax shelter, you must pay tax on the interest each year. Say your marginal tax rate is 40%. That cuts your 8% GIC rate to 4.8% after tax ( 8 x (1.00 - 0.40) ).

Now subtract the 5% inflation rate and you'll see you're actually losing money - or at least purchasing power - on a risk-free GIC. The same goes for Canada Savings Bonds, though their rates are adjusted each year

Risk - Interest Rate:

This is related to inflation risk. As inflation goes up, so do interest rates on newly issued bonds and other fixed-income vehicles. As interest rates rise, the market value of previously issued instruments fall. Conversely, as interest rates fall, those values rise. That is a big concern for an investor who has to sell a bond before it matures.

Risk - Liquidity:

How easily can you get at your money without undue capital loss? A bank account is highly liquid and carries no risk of capital loss - as long as you're within deposit insurance limits. But it yields very low returns. Stocks and bonds are highly liquid and offer higher returns, but greater capital risk. Residential real estate is liquid when the market booms, but you'll get hammered if you have to sell when the market is down.

Risk - Market:

That's the risk associated with just being in the market. A market plunge will hit the shares of even the world's best companies. You might own the nicest home in the area , but an overall slump in housing will reduce its value.. What you paid for something is irrelevant; it's worth only what someone will pay when you go to sell.

Risk - Political:

Government action affects every investment, either directly, through changes in tax or zoning laws, or indirectly, through economic policy. The longer you hold your investment, the more you run the risk that politicians and bureaucrats will change the rules.

Risk - Reinvestment:

The risk that proceeds received in the future will have to be reinvested at a lower potential interest rates.

Risk -Premium:

The difference between the required rate of return on a riskless asset with the same expected life.

ROE:

Return on equity.

Roll Over:

Reinvest funds received from a maturing security in a new issue of the same or a similar security.

Rollover:

The transfer of property from one person or situation to another without triggering tax at the time of transfer: e.g., from an RPP to an RRSP.

Round Lot:

In the money market, round lot refers to the minimum amount for which dealers' quotes are good. This may range from $100,000 to $5 million, depending on the size and liquidity of the issue traded.

Royalty Trusts:

An investment trust that gets income from royalties. The most common form of income is from owning a stake in an oil or gas well.

Royalty trusts have many features in common with REITs.

RPP:

Registered Pension Plan. A government approved pension plan which allows both employee and employer to contribute to save for retirement.

RRSP -Ancillary Benefits:

Benefits offered by an employer's pension plan in addition to the regular payout. For example: inflation-indexing, bridging benefits that top up an early retiree's payments until Canada Pension Plan and Old Age Security kick in, and death benefits. These are "free" benefits in that they don't increase the pension adjustment or generate a past- service pension adjustment.

RSP -Carry-forward:

Starting 1991, if you don't make your full RRSP contribution each year, you can "bank" it for use in later years.

RSP -Contribution Room/Limit:

Your total tax-sheltered retirement savings limit for a given year has two parts: the pension adjustment and your RRSP. The pension adjustment (see below) puts a value on your employer sponsored plan, in any. The better the plan, the lower your personal RRSP limit, or RRSP contribution room.

RSP -Deduction Room/Limit:

Many advisors use this term instead of contribution room/limit to refer to pension and RRSP limits. They view contribution room/limit as the total of your deduction room/limit plus whatever is left of your deduction room/limit of your new lifetime penalty-free $8,000 overcontribution cushion. The Income Tax Act uses the term "deduction limit", but several government publications seem to use that and contribution limit interchangeably. You figure it out!.

RSP -Deferred Profit Sharing Plan (DPSP):

One form of tax-sheltered. employer-sponsored savings plan. The employer must make at least a minimum contribution when there are profits to support it. You may generally make cash withdrawals when you quit or retire. How much you receive depends on how much the employer contributes and how well that money is invested.

RSP -Designated Plan:

A new category of defined-benefit registered pension plan. It applies when more than 50% of the plan's active members are "connected persons" or earn more than 2 and one half times the average industrial wage. A connected person is someone who owns at least 10% of any class of the company's shares or doesn't deal at arm's length with the employer. There are special rules to ensure these people don't give themselves overly generous tax-sheltered pension plans.

RSP - Offset:

The pension adjustment for a member of a defined-benefit registered pension plan is reduced by $1,000. This is to enable most members of "Cadillac" pension plans to contribute at least $1,000 to their RRSPs each year. Cadillac plans are top-of-the-line.

RSP -Overcontribution Cushion:

A penalty-free lifetime allowance of $8,000. The tally begins with overcontribution for 1991. This cushion was designed to provide leeway for mistakes and to accommodate past-service pension adjustments. To ensure parents don't improperly shelter money in their children's names, this cushion is available only to adults. Over contributions aren't tax deductible for the year they're made, but can be allocated to future years' RRSP limits, generating tax deductions then. Overcontributions beyond the cushion are taxed at 1% per month.

RSP Pension Adjustment (PA):

The deemed value of credits earned in an employer-sponsored plan. Your RRSP contribution room is reduced by this amount. Your employer must calculate the PA, and report it in the T4 tax slip issued in February.

RSP - Portability:

Refers to the ability to transfer the accumulated pension benefits of a plan member to another pension plan or to a locked-in RRSP when an employee retires or change jobs.

RSP -Registered Pension Plan (Defined Benefit):

Defined-benefit plans cover more people than any other form of RPP. The employer promises to fund a pension based on a set formula - for example: 1.5% of average salary for the final three years of service. Because these credits represent future income, not current contributions, their PA calculation can be complex.

RSP -Registered Pension Plan (Defined Contribution):

Also known as a money-purchase plan. The employer promises to contribute a set amount each year, but your pension amount isn't guaranteed, It will depend on how well the fund is invested and on interest rates at the time you retire.

RSP -Registered Pension Plan (Specified Multi-Employer Plan):

A SMEP is a special type of RPP for unionized employees. It requires a fixed employer contribution - like a defined contribution plan - but provides retirees with a defined-benefit pension. There are special PA calculation rules for SMEPS.

RSP - Spousal RRSP:

Provides a married person the opportunity of contributing to a spouse's RRSP, while claiming the deduction from his own income.

RSP -Vesting:

When credits vest, you become fully entitled to the future pension you've earned - or in the case of a defined-contribution plan, to the money contributed by your employer. That means you won't lose that money when you change jobs.

RSP -Yearly Maximum Pensionable Earnings (YMPE):

An amount determined by the government based on the average industrial wage. For 1991, it's $30,500. This amount is used to set Canada Pension Plan contributions. Many defined-benefit plans also use it in calculating their benefit payouts. (See tax guide).

Revolving Credit:

Credit that you can use from time to time to buy various goods or services of varying cash value (also called vendor credit).

Rule of 72:

A way to determine the effect of compound interest.

How long will it take your money to double if you invest it at 8%, keep reinvesting the interest received and earn 8% on all investments? Use the Rule of seventy-two: divide 72 by the rate of interest and you get the number of years it takes to double your capital. Seventy-two divided by 8 is 9. In nine years you'll double your money; in eighteen years you'll quadruple it.

Another way to look at the Rule is.

72 ÷ 1% growth=money will double in 72 years

72 ÷ 3% growth=money will double in 24 years

72 ÷ 6% growth=money will double in 12 years

72 ÷ 9% growth=money will double in 8 years

72 ÷ 12% growth=money will double in 6 years

72 ÷ 15% growth=money will double in 4 years and 10 months

for example:

$2,500 @ 12% will grow to $5,000 in 6 years

This Glossary of financial terms was created by Fiscal Agents Financial Information Services, Research Department. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, electronic, photocopying, recording, or otherwise, without the prior written permission of Fiscal Agents. Copyright Fiscal Agents © 2000. All Worldwide Rights Reserved. Click to contact Glossary editor or see the permissions page.