IFIC Study Notes – Chapter 8: Retirement, Tax,
and Estate Terminology
An investment management style employed by managers who believe that financial markets
present occasional inefficiencies which can be exploited to earn excess returns. Proponents of
this approach will try to add value through strategies such as market timing and individual
security selection. - correct answer ✔✔active portfolio management
A statistical measure of the value a fund manager adds to the performance of the fund
managed. If alpha is positive, the manager has added value to the portfolio. If the alpha is
negative, the manager has underperformed the market. - correct answer ✔✔alpha
A somewhat inaccurate method of calculating average annual return. It involves adding up the
annual returns and dividing by the number of years. - correct answer ✔✔arithmetic mean
The weight of the various components (cash, debt, equity, and money market securities) of an
investor's portfolio. - correct answer ✔✔asset allocation
A statistical tool used to measure the direction of the market. The most common average is the
Dow Jones Industrial Average. - correct answer ✔✔average
The standard measure of market risk. It shows how much a security or a portfolio fluctuates
when the market as a whole fluctuates. - correct answer ✔✔beta
A statistical measure of the degree to which the returns on a security are associated with the
returns on another security. - correct answer ✔✔correlation
The process of reducing investment risk by investing in different types of securities issued by
companies active in different industries. Ideally, these securities will not all have the same
, response to economic and other events — as some decrease, others will hopefully increase. -
correct answer ✔✔diversification
Refers to the preferential tax treatment granted to dividend income (common and preferred)
received from taxable Canadian corporations. The dividend is grossed up by 38% and the tax
credit of 15.02% is calculated based on this amount. - correct answer ✔✔dividend tax credit
(DTC)
A measure of a bond or a bond portfolio's sensitivity to changes in interest rates. The higher
(lower) the duration, the greater (smaller) the change in the value of a bond in response to a
given change in interest rates. - correct answer ✔✔duration
If markets are efficient, the prices of securities reflect all the information that exists about them.
- correct answer ✔✔efficient
Security analysis that attempts to determine the true or intrinsic value of a security by
examining the fundamentals such as sales, earnings, economic changes, competitive forces, and
management. - correct answer ✔✔fundamental analysis
A calculation that determines the average compound return over several time periods. - correct
answer ✔✔geometric mean
A transactional rate of return measure that takes into account all cash flows and increases or
decreases in a security's value for any time frame. Time frames can be greater or less than a
year. - correct answer ✔✔holding period return
A generalized, sustained trend of rising prices. - correct answer ✔✔inflation
The act of trading in securities based on undisclosed material non-public information. - correct
answer ✔✔insider trading
and Estate Terminology
An investment management style employed by managers who believe that financial markets
present occasional inefficiencies which can be exploited to earn excess returns. Proponents of
this approach will try to add value through strategies such as market timing and individual
security selection. - correct answer ✔✔active portfolio management
A statistical measure of the value a fund manager adds to the performance of the fund
managed. If alpha is positive, the manager has added value to the portfolio. If the alpha is
negative, the manager has underperformed the market. - correct answer ✔✔alpha
A somewhat inaccurate method of calculating average annual return. It involves adding up the
annual returns and dividing by the number of years. - correct answer ✔✔arithmetic mean
The weight of the various components (cash, debt, equity, and money market securities) of an
investor's portfolio. - correct answer ✔✔asset allocation
A statistical tool used to measure the direction of the market. The most common average is the
Dow Jones Industrial Average. - correct answer ✔✔average
The standard measure of market risk. It shows how much a security or a portfolio fluctuates
when the market as a whole fluctuates. - correct answer ✔✔beta
A statistical measure of the degree to which the returns on a security are associated with the
returns on another security. - correct answer ✔✔correlation
The process of reducing investment risk by investing in different types of securities issued by
companies active in different industries. Ideally, these securities will not all have the same
, response to economic and other events — as some decrease, others will hopefully increase. -
correct answer ✔✔diversification
Refers to the preferential tax treatment granted to dividend income (common and preferred)
received from taxable Canadian corporations. The dividend is grossed up by 38% and the tax
credit of 15.02% is calculated based on this amount. - correct answer ✔✔dividend tax credit
(DTC)
A measure of a bond or a bond portfolio's sensitivity to changes in interest rates. The higher
(lower) the duration, the greater (smaller) the change in the value of a bond in response to a
given change in interest rates. - correct answer ✔✔duration
If markets are efficient, the prices of securities reflect all the information that exists about them.
- correct answer ✔✔efficient
Security analysis that attempts to determine the true or intrinsic value of a security by
examining the fundamentals such as sales, earnings, economic changes, competitive forces, and
management. - correct answer ✔✔fundamental analysis
A calculation that determines the average compound return over several time periods. - correct
answer ✔✔geometric mean
A transactional rate of return measure that takes into account all cash flows and increases or
decreases in a security's value for any time frame. Time frames can be greater or less than a
year. - correct answer ✔✔holding period return
A generalized, sustained trend of rising prices. - correct answer ✔✔inflation
The act of trading in securities based on undisclosed material non-public information. - correct
answer ✔✔insider trading
