luda002

I can’t answer the question regarding the 2009 exam yet, but the return on a commodity should be in my opinion:
-the futures return (including convenience yield) + collateral return (on cash) (assuming no storage costs). It cannot be any other way.
If you back out the convenience yield, you can also say that you earn:
-the futures return (net of convenience yield) + collateral return + roll return (from convenience yield).
They call the first term “spot return” but it is really the spot-return minus RFR. So in my opinion it is then also:
-Actual spot return - RFR + collateral return (RFR) + roll return (convenience yield)
=Actual spot return (holding the commodity) + convenience yield
That would make sense, and it cannot be any other way in my opinion. You can’t earn the actual spot return and then again earn the RFR. What they probably mean in the book with the “spot return” is the short-term futures return (backing out convenience yield, but not doing anything regarding RFR). RFR is then earned on the collateral.