Property Damage Liability

Insurance coverage that pays the cost of damage to other people’s property for which you become legally liable.  

Random variable

A quantity whose possible values are the outcomes of a random process.  For example, the result of rolling a dice is a random variable with possible outcomes of 1, 2, 3, 4, 5 and 6.  If the dice is fair, each outcome has equal probability of being observed.

Real cost

The amount something costs when stated in terms of its cost in a single year regardless of the year in which it is actually purchased.  For example, if you assume that the only reason the cost of something changes is inflation, the real cost will be constant.  Stated differently, the real cost is equal to the nominal cost after removing the impact of inflation.

Registered Pension Plan

A type of Defined Contribution Plan available in Canada. No taxes are paid on the contributions or any changes in the market value of the investments in the account until the money is withdrawn. RPPs are the same as Group RRSPs.

Registered Retirement Savings Plan

A type of Defined Contribution Plan available in Canada. No taxes are paid on the contributions or any changes in the market value of the investments in the account until the money is withdrawn. That is, your salary is reduced by the amount of your RRSP contributions in the year the contributions are made. Group RRSPs can be established by employers as part of a defined contribution plan, while individual RRSPs can be set up by individuals.

Residual Value

The amount for which you can sell something you own on any date after you purchase it.  In a car lease, the residual value is the amount for which you can buy the car at the end of the lease if you choose to buy it instead of turn it in.

Return on Equity

A measure of the effectiveness of the use of a company’s capital. Although not precise, it is calculated roughly as the company’s net income during the year divided by its shareholders’ equity at the beginning of the year.

Revolving Debt

A source of debt, such as a credit card or line of credit, with a stated maximum against which you can borrow and can re-pay at your discretion.

Risk

The possibility that something bad will happen.

Risk tolerance

Personal preference indicating how much risk you are willing to take to achieve a higher return.