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CFA Level I · CFA Level I Exam · Natural Resources

An investor holds a fully collateralized long position in a commodity futures contract. The return on the position is most likely the sum of the spot price change, the roll yield and:

The missing component is the collateral return, the interest earned on the assets backing the futures position. A fully collateralized long futures return equals the spot price change plus roll yield plus collateral yield. Convenience yield and storage costs influence futures prices but are not separate return components.

  1. Athe convenience yield on the physical commodity
  2. Bthe collateral return from interest earned on the margin assetsCorrect
  3. Cthe storage cost saved by not holding the physical commodity

Explanation

A fully collateralized futures position earns the spot price return, the roll yield and the collateral yield, which is interest on the assets posted or held as collateral. Convenience yield and storage costs affect futures pricing but are not separate return components in this decomposition.

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