Core Curriculum Chapter 10 Flashcards
SAVING VS INVESTING - What is the difference between saving and investing?
Saving involves low-risk, guaranteed return instruments like GICs, while investing carries risk but offers potential for higher returns.
INVESTMENT OBJECTIVES - What factors influence an investor’s decision?
Time horizon, liquidity, growth, inflation, income, diversification, risk tolerance, tax efficiency, estate planning, and costs.
GUARANTEED INVESTMENT CERTIFICATES (GICs) - What are the key features of a GIC?
Principal and interest are guaranteed, locked-in for a set term, and provide low-risk returns.
BONDS - What are the main characteristics of bonds?
Fixed-income debt securities that pay periodic interest and return principal at maturity, with varying risk levels.
COMMON VS PREFERRED SHARES - How do they differ?
Common shares offer voting rights and potential capital gains; preferred shares provide fixed dividends with priority over common shares.
MONEY MARKET INSTRUMENTS - What are they used for?
Short-term, low-risk investments like T-bills, used for liquidity and capital preservation.
DERIVATIVES - What are the two main types?
Options (contracts giving the right to buy/sell) and futures (agreements to buy/sell an asset at a future date).
MODERN PORTFOLIO THEORY - What is its core principle?
Diversification optimizes risk-adjusted returns by considering standard deviation and asset correlation.
BEHAVIORAL FINANCE - How does it affect investment decisions?
Investors make irrational choices due to biases, overconfidence, loss aversion, and market sentiment.
MARKET INDEX - What is its purpose?
A benchmark tracking market performance, like the S&P/TSX Composite Index.
STANDARD DEVIATION - What does it measure?
The volatility of an investment’s returns compared to its average return.
DIVERSIFICATION - Why is it important?
Reduces portfolio risk by spreading investments across asset classes.
