 # 2009 BSAS Exam Doubts - 2

Calculating roll returns: CM Futures Prices in March Futures in Feb Change in S.R. Annualized S.R. April 41.5 40.15 0.3 9% May 40.59 39.59 0.3 9.1% June 39.44 38.64 0.3 9.3% Calculate the total return for the above futures contracts. Assume an average spot annual return of 9% and an average T-Bill rate of 2.7%. Assume roll return obtained corresponds to an annual return. Will post the answer after you guys give it a shot.

total return = spot return + roll yield + collateral yield collaterla yield = 2.7%? roll yield = 41.5 - 40.15 = 1.35 … 1.35/41.5=3.3% Spot return = 9% 2.7+3.3+9= 15% F**** knows… this is some bs… If you see this question come up., i will be the one crying in the parking lot on break.

(41.5 - 40.15) - 0.3 =1.05/40.15 = 2.XX% 40.59- 39.59 -0.3 = 0.7/39.59 = 1.XX% 39.44-38.64 - 0.3 = 0.5/38.64 = 1.XX% Annualized rate with geomertic mean formula = YYY Total Return = 2.7 + 9 + YYY =? Don’t have the calculator…

Roll Retun = (41.5-40.15) - 0.3 = 0.05% Spot Return = 0.3% Collateral Return = 2.7%/12 = 0.225% Total return : 0.575%

total futures return: (#futures-#spot) + spot rtn + collateral rtn for april = [(41.5-40.15)-0.3] + 9/12 + 2.7 / 12 = 2.025% for May= [(40.59-39.59)-0.3] + 9.1/12 + 2.7 / 12 = 1.675% for June = [(39.44-38.64)-0.3] + 9.3/12 + 2.7 / 12 = 1.475%

While we are on the topic, can roll yield be negative if the market is in contango? Or does it just not exist then?

41.5-40.15- 0.3 = 1.05 40.59-39.59-0.3 = 0.7 39.44-38.64 -0.3 = 0.5 TR(Apr) = SR + RR + CR SR = 0.75 CR = 0.225 RR = 1.05/12 = 0.0875 TR(Apr) = 0.75+ 0.0875 + 0.225 = 1.0625% EDIT: Missed the line wherre they say - Assume the RR is annual

LaGrandeFinale Wrote: ------------------------------------------------------- > 41.5-40.15- 0.3 = 1.05 > 40.59-39.59-0.3 = 0.7 > 39.44-38.64 -0.3 = 0.5 > > TR(Apr) = SR + RR + CR > SR = 0.75 > CR = 0.225 > RR = 1.05 > TR(Apr) = 0.75+ 1.05 + 0.225 = 2.025 Don’t you need to bring these values into % terms?

Will give you guys 10 more mins. Keep em comin !!

make that 5 more mins 10 seems a bit too long

41.5-40.15- 0.3 = 1.05 TR(Apr) = SR + RR + CR SR = 9 CR = 2.7 RR = 4.267 TR(Apr) = 4.267+2.7+9= 15.967?

Allright. Here we go: I think CFABoston was on track with the answer. Mind you the question above asks for the answer in %, not actual numbers. And its in annual terms. Step 1: Calculate roll return for each month. April: 1.05 May: 0.7 June: 0.5 Step 2: Calculate Roll Return in yield terms: Roll return/Price on beginning month April: 1.05/40.15 = 2.6% May: 0.7/39.59 = 1.8% June: 0.5/38.64 = 1.3% Add em up to get the total roll return = 5.7%. Step 3: Calculate total return: 2.7%+5.7%+9.1% = 17.5. I pretty much got murdered in this problem. Just one quick quick question. I don’t understand the part where the question says “Assume roll return obtained corresponds to an annual return”. So, is that why we don’t convert the roll return of each month into annualized, because it already assumes its annualized? P.S. Two imp. formulas I learnt today: Roll return yield = Roll return/Price of futures in the beginning month. Annualized spot rate = (Change in spot rate/price of futures in the beginning month)*12

Sparty, can you show me the calc you used to get 9.1% for spot rate?

sparty419 Wrote: ------------------------------------------------------- . Assume an average spot annual return of > 9% and an average T-Bill rate of 2.7%. Assume roll > return obtained corresponds to an annual return. Don’t understand what these statements mean !

FUCK

@CFA Dreams: I think there is a typo in the answer. It should be 9.0% not 9.1%. The questions asks us to assume the average spot return is 9.0%. 9.1% could also be the average of (9+9.1+9.3), close enough I guess @AMC: I guess they want us to calculate the total return in an annual yield format. Hence, use 9% and 2.7%. @LGF: I am in the same boat as you buddy. Some shit like this keeps coming up every day and just pisses me off.

Got lucky this time. Hopefully luck will continue in the last stage of CFA journey.

Alright last chance then im gonna let this go… Anyone know if roll yield can be negative if the market is in contango? Or if there even is a roll yield.

yes it can be negative in contango. wiki says … Investment in a commodity index generally entails (i) the bulk of the investment’s being put into secure instruments such as Treasury bills and (ii) the remainder of the investment going into futures. The most liquid futures tend to be those in the very near term, and they usually have short maturities, typically 1 month, so investment in liquid futures means investing in a contract that is likely to mature in the near future. Given that the investment term in the index is open-ended, the futures investment component is going to move from one future to the next succeeding future during the life of the underlying index investment. For example, a 5 year investment might involve a change in the underlying futures on 60 monthly occasions. The investment is “rolled” from one futures contract to the next at which time if the price of the expiring contract is higher than the replacement contract (positive roll yield), selling the expiring and buying the replacement will yield a positive cash result. If the replacement contract is higher in price than the expiring contract, the reverse is true (negative roll yield).